After many days of rises in Italian yields across the board, the rumors finally materialized: it is now harder to buy Italian debt. The decision applies to all maturities. This is what happened with Greece, Portugal and Ireland.
Italian 10 year bond yields are at 6.77%, close to to yesterday’s numbers, but they will likely leap after this decision. 5 year yields have surpassed the 10 year yields and are now at 6.9% after touching 7%, also known as “the point of no return”. 2 year yields are climbing to 6.43%, and there’s no stopping.
It’s important to note that LCH Clearnet SA is not LCH Clearnet Ltd. but this is still meaningful, as Joseph Cotterill explains:
LCH Clearnet SA follows a different framework to LCH Clearnet Ltd – operator of the RepoClear service which applies the famous 450bps spread “trigger” for sovereign risk margin. LCH Clearnet SA is still closely involved in the Italian bond market. Therefore its raising of initial margin by between 3 and 5.5 per cent across Italian bond maturities matters,
The markets already forced Silvio Berlusconi to announce a conditional resignation after more reforms are approved in parliament. Perhaps Berlusconi will turn is conditional resignation into a real one, much sooner.
This adds to the pain of the euro. EUR/USD is now sliding under 1.38 once again, after falling from the 1.3838 line earlier today. Some support is found at 1.3725, with more significant support at 1.3650.
For more on the euro, see the EUR/USD forecast.
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