There's No Demand For Italy's Debt Except From The ECB
Image from Tweet below.
We've flagged the lack of demand for Italy's debt for over a year: (i) domestic demand is zero; (ii) foreigners are selling; (iii) ECB is the only buyer. This should be a matter of great urgency for Italy's politicians. But it isn't as ECB QE and now reinvestments provide cover. pic.twitter.com/uI5FM8TwWo
— Robin Brooks (@RobinBrooksIIF) August 8, 2022
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's 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."
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
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