Eq: Dev ex-US


For those who consider themselves students of the market, yesterday was a real whopper. Short-term bond yields can usually be seen as a proxy for cash. But in a truly astonishing move, Italian two-year yields rose an amazing 1.5 percentage points yesterday (150 bp) to 2.4%. By comparison, other southern European yields, such as Spain, moved just 12 bp. Markets are worried about a massive Italian default, and possibly the redenomination of bonds into Lira.

FINSUM: When you get right down to it the panic here is not just about a default, but about a breakup of the Euro. We have always said it would be Italy to leave first, and the major question is whether others would join them when that happened.


This is Europe week for financial markets. Italy is currently engulfed in a political, and increasingly markets, crisis. Now the panic and political gloom is spreading to Spain. The country’s Prime Minister, Mariano Rajoy, is set to face a no confidence vote and the outcome is very uncertain. Accordingly, Spain’s sovereign yields have been rising alongside Italy’s. The no confidence vote will be held on Friday and comes following a ruling of corruption against the center-right party of which Rajoy is leader.

FINSUM: Southern Europe is back in the news this week after a six-year hiatus. We don’t think anything major will be caused by Spain, but the Italian situation is very dicey.


We do not cover too much European news. This is mostly because our readers don’t pay much attention when we do. However, we thought the crisis going on in Italy warranted special attention. Stocks are plummeting and bond yields soaring on the back of a political uproar over the future of leadership. In particular, two big parties (i.e. the Five Star Movement and the League) who are leading in the polls both propose lavish tax cuts and spending increases which look on the surface to possibly lead Italy to a default, which has bond investors and the European establishment worried.

FINSUM: We feel for Italy, we really do. We think the country has really been crippled by the Euro and now there is no easy way out. We expect positions will moderate, but this could cause some volatility.

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