Publish date:

Italy Capital Flight Escalates: Highest Two-Month Total Ever

Capital Flight in Italy escalates at a record pace. It's seen in Target2 balances and spreads rather than an EM crisis.

Thanks to Holger Zschaepitz for this set of Tweets.

Silent Capital Flight

EGB Credit Curve

Italy Debt Downgrade Coming Up

Italy 10-Year Bond Yield

Image placeholder title

Germany 10-Year Bond Yield


Image placeholder title

Theory vs. Reality

In theory, there is zero default risk on Eurozone sovereign bonds.

If that was the case, German 10-year bonds and Italian 10-year bonds would have the same yield.

In practice, the bond market says the spread between German and Italian 10-year bonds is 275.5 basis points (2.755 percentage points) and climbing.

For now, capital flight shows up in interest rates, spreads, and Target2 balances rather than a full blown crisis of some sort. How long this can continue is anyone's guess.

Risk High and Rising

I discussed this setup twice recently.

  1. July 12, 2018: Eurointelligence Displays Stunning Ignorance Regarding Target2
  2. August 4, 2018: Debate Over Target2 Continues: Twilight of the Euro

Bottom Line

Claims that none of this matters and that there would be no consequences if Italy left the Eurozone and defaulted are more ridiculous as ever.

The harder people attempt to come up with reasons that none of this matters, the sillier they look.

The bond market is talking. Who's listening?

Mike "Mish" Shedlock

Another Look at Capital Flight in Italy and Spain: ECB’s Target2 Explanation is False

The ECB claims that Target2 does not represent capital flight. Evidence says the ECB is wrong, especially for Italy and Spain.

Capital Flight in Italy, Spain Intensifies: Italy Target2 Balance Hits Record Negative

The ECB statistical data warehouse released Target2 Balance figures today. The numbers are reflective of intensifying capital flight in Italy and Spain.

Eurozone Capital Flight Intensifies: Target2 Imbalances Widen Again

A quick perusal of Target2 Balances for January shows capital flight from Italy and Spain to Germany intensified again.

Capital Flight to Germany in Full Swing

Capital; flight to Germany, the Netherlands, and Finland is in full swing. These sums cannot be paid back.

Capital Flight in Eurozone Continues

Capital flight from one Eurozone country to another, continues to rise. That capital flight is a measure of trust of of a nation’s banks.

Italy Target2 Imbalance Hits Record €432.5 Billion as Dwindling Trust in Banks Plunges

Contrary to ECB propaganda, Target2 imbalances are a direct result of an unsustainable balance of payment system. The imbalances represent both capital flight and debts that can never be paid back. If you think Italy can pay German and other creditors a record €432.5 Billion, you are in Fantasyland.

German Investors Dumping Italian Bonds: Italy Increasingly Dependent on ECB, Target2 Capital Flight

Italy is increasingly dependent on the ECB to hold down bond yields as foreign investors dump Italian bonds like mad.

China's Currency Bluff to Stop Capital Flight

Looking for a currency bluff? I have one!

In Unprecedented Move, EU Rebukes Italy's Budget: Italy Politely Says Screw You

The budget crisis in Italy broke wide open today with a formal, unprecedented rebuke by the EU which Italy dismissed.