Dawn in Europe?

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According to Bloomberg

The Rome-based Treasury sold 3.5 billion euros of a new three-year bond, 2.5 billion euros of 2022 bonds and 1.5 billion euros in 2020 bonds, just shy of the top range of 8 billion euros for the sale. The three-year bond yielded 7.89 percent while the 2022 bond yielded 7.56 percent, up from 4.93 percent and 6.06 percent respectively when similar-maturity debt was last sold on Oct. 28.

I am fairly pessimistic about Europe, however I don’t think that this is such a bad result. They still have market access at a price they can sustain for a while.

I actually expect that EU Sov spreads might tighten over the next month or so. Italy and most other EU Sovereigns are about to finish for the year, and I suspect that many of those who are rushing for the exit are now out. Kokusai, for example, is reported to have been all out by 10 Nov.

This crisis has been a bit self re-enforcing. EU Sovs widen, sell risk, buy US notes and Aussie bonds … If i’m right about EU Sovs steadying, risk ought to rally.

I’d take my risk as a long AUD position. Good liquidity, good carry, and good fundamentals. This isn’t a long term trade – I expect to be out of it in Jan.

One comment

  1. “They still have market access at a price they can sustain for a while”

    I think you are underestimating the seriousness of this!

    Why do Italy citizens have to pay more than Portugal, Greece and Ireland to service their debt?

    Next year Italy has to renew hundreds of billions of debt, that’s like in a few months. They have austerity and a recession coming in 2012-2013. If the EU don’t wake up soon and start printing, it’s all going to explode.

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