Dithering politicians; clueless traders; and teenage analysts spouting super-irritating but baseless correlations. It’s a combination from hell. Italy’s position hasn’t changed of late; yet it’s all of a sudden got ensnared by the Eurozone crisis. If you cared to believe the headlines on Monday, the country was basis points of yield away from a bailout, because the refinancing rate inferred by current bond yields would be prohibitive. How ridiculous.
Keith Mullin, Editor at Large, International Financing Review
The doom is based largely on facile similarities to other bailed out countries that bear little if any real rigour. I’ve interviewed (and hired) a bunch of traders in my time and I know how spurious and vacuous some of their axes can be!
At the heart of the rot, though, are Eurozone officials and politicians, a useless and dozy bunch completely lacking leadership, conviction or purpose. Their emergency meetings over the weekend and into this week are achieving exactly nothing.
So the French debt proposal for Greece is off the table because it’s too complicated, but the German exchange plan, which had been rejected, is back on; as is the buyback proposal. And of course selective default (as if that exists – it’s all or nothing) is on the table despite vigorous opposition from the ECB. Bailout 2.0 is now being pushed back to after the summer.
In the confusion created by the vacuum, Italy gets hammered for no real reason, sending 10-year paper heading in a straight line towards the 7% no-go zone. Yet try to find liquidity in the BTP market. There is none. MTS actually turned off quotes in Italy and Spain on Tuesday, IFR Markets reported. What that suggests is the gyrations are little more than dealers dicking around trying to cover their backs. Then just when the market thinks Italy is doomed, news that the ECB is buying Portugal and China is buying Italy and Spain underpins a huge reversal that sends Italy 10s back below 5.6%.
So where do we go from here? Who knows? But expect more conviction-less trading on low volumes that will turn on the smallest rumour. I reckon a good near-term solution would be to charter a big bus and send the senior EZ political class on a long excursion to Oblivion so we can at least enjoy the summer.