Riddle me this. Yesterday, Italy had a 'successful' short term bond auctions but the market took a gash to the chest as the euro broke down to a yearly low – which of course meant the dollar rallied, which of course meant every risk asset on Earth had to be sold by the computers. Of course those sub 3 year bond auctions were affected by the LTRO situation. Today, we saw an Italian 10 year bond auction, which was relatively putrid at a nearly 7% yield, the euro falls again and…. no one cares. Futures are up. Boggling. Just boggling.
On a side note – it looks like the ECB (which of course is not allowed to bid directly in an auction from a government) stepped in directly after the auction to buy buy buy.
Based on the difference in action in sub 3 year versus over 3 years we clearly see that yes the LTRO has had an impact….this was something I was very curious to see. One wonders when the ECB will begin offering nearly free money at 7 years (or heck 10 years) rather than 3 years to "fix" the eurozone.
- Italy's borrowing costs fell from recent record highs at a bond auction on Thursday but cautious investors still demanded a near 7 percent yield to buy 10-year debt, a level seen unsustainable over time for the euro zone's third-largest economy. Traders said the European Central Bank stepped in after the auction to buy Italian bonds on the open market as investors worry about the country's ability to sell enough long-term debt ahead of large redemptions early next year.
- Italy raised 7 billion euros ($9 billion) of debt in thin holiday markets, just above the mid-point of its target range. It sold the top planned amount of its 10-year benchmark bond but the yield was 6.98 percent, not far from a euro lifetime record of 7.56 percent a month ago.
- "Today's decline in the auction yield by 'just' about 60 basis points versus end-November in such a high-yield territory underscores that the genuine pressure on Italy is still tremendous, despite bold ECB actions that have given (short-term debt) a big boost," said David Schnautz, a rate strategist at Commerzbank in London.
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