Monday, 14 November 2011

Italians pay record high rates on their 5 year bond today

The 10 year rates that are usually quoted are taken from a yield curve fit to the latest traded prices of all Italian bonds in the secondary market. It does not give the price that Italy is paying but an estimate of the price Italy would have to pay if it issued a 10 year bond today. Yield curves generally slope upwards with bond maturity so the yield on a 10 year will be higher than the yield on a 5 year which will be higher than the yield on a 2 year etc. Today Italy sold 3 bn € of a 5 year bond and had to pay 6.29% roughly twice what it paid on its last 5 year offering. this is going to go on and on as Italy has to roll over its debt portfolio and boy does iTALY HAVE A LOT OF DEBT TO ROll over, 350 bn € in the next 12 months.

This will start eatig lasrger and larger chunks out of Italy's falling tax revenues out of which it has to pay for schools, police, hospitals etc not to mention chauffeur driven limos for their MPs and the 100000€ a year barber they employ to cut Berlusconnis few hairs. Yes he like our own GB is still an MP.

The ECB have been very naughty. They had been buying up Italian debt like billy oh and has 200 bn € on its books already but last week it stopped its purchases. Yields soared and as a result Berlusconni fell. Now that hhe has gone and Monti is in the ECB will resume purchasing Italian bonds in the secondary market. Italian yields have fallen back about 80 basis points and this has been hailed a technocratic triumph. for Monti. The markets are not that easily fooled but you will get a lot from the Eurocrats about their wonderfull regime change effect.. Its pure EU propagnada.

The Italians have a long tradition pre Mafia of knifing their leaders. Ask JC. I would advise Signor Monti not to visit the forum.

Any way I am off to Sarky land tonight for a few days. The only decent WiFi connection there is in MacDonalds but my wife does not like to be seen there so I may be incommunicado for a while.

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