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There’s No Demand For Italy’s Debt Except From the ECB

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13 comments on There’s No Demand For Italy’s Debt Except From the ECB

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Image from Tweet below. 

Despite the ECB QE cover, Italy’s 10-year bond yields are soaring relative to Germany. 

Eurozone 10-Year Sovereign Bond Yields

Data from ECB, chart by Mish

ECB data runs through June. August is the current spot rate. 

Current 10-Year Bond Yields 

  • Germany: 0.88%
  • Spain: 1.94%
  • France: 1.44%
  • Greece: 3.05%
  • Ireland: 1.55%
  • Italy 2.84%
  • Portugal: 1.89%

Spreads to Germany

Current 10-Year Bond Yield Spreads to Germany

  • Spain: 1.06%
  • France: 0.56%
  • Greece: 2.17%
  • Ireland: 0.67%
  • Italy 1.96%
  • Portugal: 1.01%

Italy and Greece are on life support. Were it not for arguably illegal country-specific QE by the ECB, Greek and Italian bond yields would be through the roof.

ECB president Christine Lagarde has said many times the central bank won’t allow financial conditions across the euro area to diverge significantly and is ready to do whatever is needed to avoid it.

The Big Myth

The big Eurozone myth is that all Eurozone sovereign debt has no risk or the same risk. If so, the yield on all Eurozone sovereign bonds would be the same.

On July 26, 2012, after Greece 10-year bonds exploded to nearly 30 percent, then ECB president Mario Draghi (now Italy’s Prime Minister) gave a speech announcing “We will do whatever it takes to preserve the Euro, and believe me it will be enough.”

https://www.youtube.com/watch?v=tB2CM2ngpQg

After the announcement yield spreads plunged.

Q: What did Draghi do?
A: Nothing!

The bluff worked then. It’s not working for Lagarde now as evidenced by spreads and the chart by Robin Brooks. 

End of the 40-Year Bull in Debt and a “Global Depression” Threat

The bull market in bonds is over, and with that Danielle DiMartino Booth see a “Global Depression” Threat

Click on the link for an excellent video.

This post originated on MishTalk.Com.

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Mike Shedlock

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13 Comments
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Oldest Most Voted
Bam_Man
Bam_Man
3 years ago
The ECB is engaging in a massive financial fraud.
Illegal, as it flagrantly violates the Eurozone’s so-called prohibition of monetizing member states’ debts.
If this outrageous fraud is not prima facia evidence that the Euro has ALREADY failed, I don’t know what possibly could.
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Six000mileyear
Six000mileyear
3 years ago
The ECB has perpetrated and perpetuated a moral hazard.
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Maximus_Minimus
Maximus_Minimus
3 years ago
It’s not only the yield, but the debt is rising, and GDP stagnating.
Why did the yields decline after the ECB hiked rates to all the way to zero, and probably will go even 0.1?
Shouldn’t the yields go the opposite direction, or in final dystopia nothing makes sense.
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Sunriver
Sunriver
3 years ago
I hold out great hope for Italy. Hope that they leave the EU and default on their debt.
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MPO45
MPO45
3 years ago
The question is why doesn’t anyone want to lend money to Italy? I have a set of “lenses” that I use to filter through all my investments and one of those key lenses is demographics. As I showed in another comment, Italy has horrible demographics. The population is aging rapidly and has little replenishment, there are more deaths than births in Italy and the far right anti-immigrant candidates are gaining ground in political leadership.
It begs the question, how will a country with a dwindling population (and thereby declining productivity and economy) be able to pay back debt? To simplify, would you lend an 80 year old man $1,000,000 with the idea that you’ll get the money back in 20 years knowing average lifespan is 82 years?
Ironically, the US will find itself in this similar situation in 2040 so it’ll be interesting to see the effect of my demographic lens on US bonds in the future. Of course, there is still time to figure out the US problem, Italy not so much.
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billybobjr
billybobjr
3 years ago
Reply to  MPO45
Most old people I know have very little or no debt houses are paid off. The government confiscated 14 percent of their checks while they were working for social security add another 3 percent for Medicare .Medicare is not free people pay $300 dollar a month for it . Social security would still have a surplus in it but the government took it all and put in IOUs . The social security is taxed . The government has over 30 trillion in debt they set a great example for the people. It would be interesting to see how the generations are vs debt and assets but I would venture the baby boomers probably look pretty good . With all the productivity and robots and innovation you would think we would be able to do with less workers so not sure
why dwindling populations equates to that but maybe . Older people definitely consume less except healthcare of course they paid into healthcare
when they were young and used less of it then so now they are the ones who need it jut like you will if you live long enough . The 30 trillion is mostly over the last 25 years .
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MPO45
MPO45
3 years ago
Reply to  billybobjr
The first robots used in manufacturing were installed in 1961 at GM. You would think 61 years later, all GM plants would be fully robotic but we are nowhere near where everyone thought we would be today. Why? Humans are always cheaper and more capable than any robot has been designed so far but maybe in another 60 years?
There are many projections that boomers will largely be the majority of homeless and it is starting to look that way as inflation ravages their savings.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  MPO45
Also assisting:
Social Security and it’s marvelous cost of living increases staying markedly behind the costs of living.
Like all percentage exponentials this means the Social Security shortfall has been increasing exponentially.
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MPO45
billybobjr
billybobjr
3 years ago
Reply to  MPO45
Well that goes without saying if economy tumbles baby boomers are going to be some of the ones who get hurt . A lot of the time though people don’t practice sound financial strategies and it comes back to bite them. People reject being responsible and taking on too much debt how much
society should backstop bad choices people make over and over again is debatable . Just not sure a population that is in a slight decline is that big of a deal .
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  billybobjr
Debtor prisons.
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KidHorn
KidHorn
3 years ago
Who in their right mind would lend money to Italy or Greece? Maybe if they pledged the colosseum or acropolis as collateral. Assuming they haven’t already done that.
All money lent to southern Europe is essentially a gift. Not a loan.
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effendi
effendi
3 years ago
Reply to  KidHorn
I agree, what are the odds that the EU holds together for 10 years? Will Germany agree to cover all debts as Europe breaks apart? If you can’t be sure then why take the risk of losing your money to earn a lousy few percent on those bonds.
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