can someone explain Italy 10 Year bond importance

Discussion in 'Wall St. News' started by billpritjr, Nov 8, 2011.

  1. RE: Euro financial crisis

    Can someone explain to me why everyone is concerned if the Italian 10-year bond reaches 7% ?

    Also, why did we see more volume in EWQ/France ETF versus EWI/Italy ETF today ? If the resignation was "good news" for Italy ?

    Thanks guys
  2. 7% is a psychological number and a pretty high one. It's simple, if the yield is higher it means Italy has to pay more "intrest" on it's debt, and thus more cash to the banks it owes money to. This decreases the likelyhood that it can pay them off, and increases likelyhood of default. If it defaults, it can't pay the banks, and they run out of cash to lend to others (other countries, businesses etc) and this starts another credit crunch and cripples economies as they can't operate without borrowing a bit of cash here and there. So, approaching 7% increases fear in people that a default will happen, and with it a credit crunch, and with it a recession. Mainly, the "7%" is talked about because it's a psychological number.

    The volumes in France vs Italy aren't that indicative in general, but there are some reasons. For one, France is the most exposed to Greek debt right now and an increase in Italy 10yr yields is indicative of market sentiment towards Greece to some extent, and in general to the whole Euro crisis. I believe France is also a big lender to Italy and that is another reason. Also, the two ETFs are different and the French one in general (afaik) has a little more volume than the Italian one. Volume increases on good news as well as bad news, so that's no surprise.
  3. Italy is part of the Euro currency, just like Greece. Greece has been looking like it could default on its debt for over a year, which would be bad for the Euro because the other member countries would have two options:

    1) Bailout Greece, this is tough politically because its mostly on the Germans and French, its hard to ask taxpayers to give money to Foreigners.

    2) Make Greece default and kick them out of the Euro. This would set a bad precedent for other countries in the Euro-zone, "if you get into trouble we are going to kick you out" means all the smaller countries would potentially leave.

    The problem with Italy is that Germany and France don't have enough money to bail them out, so if they default it essentially means no more Euro currency. I have heard estimates that if the Euro was gone Germany would take a 20% hit to its economy and it would be the best off of the member countries. Essentially it would be a new depression across the Euro zone, much worse than the financial crisis of 2008. It would spread across the globe.

    The interest rate demanded to hold debt is an indicator of how safe the market feels the risk of default on that debt is. 7% is about where junk corporate bonds are trading, so that means if Italy's debt is trading above 7%, there is a very high risk of default and that is a very bad thing for the world economy.

    Now if someone can tell me why the Euro is still trading around 13800 vs the USD with all this going on, I would be interested to hear (read) your explanation.


  4. Illum


    "Now if someone can tell me why the Euro is still trading around 13800 vs the USD with all this going on, I would be interested to hear (read) your explanation. "

    The USD Is that bad.

  5. A bus stops and two Italian men get on. They sit down and engage in an animated conversation.
    The lady sitting behind them ignores them at first, but her attention is galvanized when she hears one of the men say the following:

    "Emma come first.
    Den I come.
    Den two asses come together.
    I come once-a-more.
    Two asses, they come together again.
    I come again and pee twice.
    Then I come one lasta time."
    "You foul-mouthed swine, " retorted the lady indignantly. "In this country we don't talk about our sex lives in public!"

    "Hey, coola down lady," said the man.
    "Who talkin' abouta sexa? I'm a justa tellin' my frienda how to spella Mississippi."
  6. 9999


    Good one!
  7. Ask the idiots of so called "macro economists" and "chief ecomonits" at London investement banks who like to get rid of their jobs and 50.000 other jobs in "The City" and you will get your answer.

    For more than 2 years some a$$holes from London have made European government debt their "theme Nr.1".

    Because before 2010 nobody even cared about AAA government debt, isn´t it, braniacs?

    Good luck for your next NOT EXISTING bonus rounds!!!! :mad: :mad: :mad:
  8. Because Italy is the 3rd largest govt bond mkt in the world, w/arnd $1.8trn outstanding, if I am not mistaken.
  9. C6H12O6


    And because italy is the third biggest economy in the eurozone.

    This the endgame for europe:
    BUND spreads:
    italy 563
    spain 402
    belgium 262
    france 141
  10. Yep... There's no EMU w/o Italy.
    #10     Nov 9, 2011