Thursday, November 10, 2011

The Italian job?

I wanted to post this yesterday but I did't want to trigger a false alarm. There have been rumours swirling around once the Italian 10-yr bond yield crosses 7%, it will trigger the panic button -- it will rise like a hockey stick. It was 6.76% on Tuesday. The equity was still cheering on Tuesday after they heard the news of the Italian PM planned to step down after he gets his Italian job done -- meaningful austerity budget he promised. I heard that bond traders are a lot smarter than equity traders. The yield did not fall on news of Italian PM's plan. I took that a NO from bond traders. They were not convinced the problem will be solved just changing guards.

The government debt/GDP ratio of Italy is almost same like Greece. But in absolute value, Italian debt is 2.7X bigger than the combined debt of Greece, Ireland and Portugal. 1.9 trillions debt could inflict much bigger damage if it's not well contained.

But Marketwatch reported their fiscal position is better than the rest of bailout countries. Read the rest here

The concern is debt roll-over by early of next year.

“You can have a minimal debt/GDP ratio, but if you need to roll over any debt and nobody will lend to you and you cannot print your own money, then you are bust,” Jenkins said. “Italy’s debt is far from minimal.”

The 10-yr yield is finally crossed 7% yesterday. That's certainly flashes red alarm.

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