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Friday, October 28, 2011

Italian Bond Yields

Source: Capital Pixel
So Europe pulled it off!  They agreed on haircut for Greek debt, percent of debt to GDP, bolstering Tier 1 capital position for banks, and funding for EFSF.  I echo those who wonder if the U.S. government can learn something here.

Now it's about execution, and a key indicator will be Italian bond yields - in particular the 10-year Italian bond yield.  To the extent that its level (5.91%) comes down and especially its spread ( +3.50%) to the 10-year German Bund narrows, it is an indication that pressures are easing.  In particular, it indicates a lessening in the probability of contagion - the spreading of the crisis throughout the region.  Another way to say this is:  it indicates the EFSF is sufficient.  A spreading of the crisis to Italy, etc. could not be handled by a $1 trillion EFSF.

The German Bund is, of course, a benchmark throughout Europe given the strict monetary policy the German central bank followed after the country's episode with hyperinflation during the 1930s. 

Following European Bond Yields

One of the really good sources for following the yield on the Italian 10-year bond, along with other European yields, is the Financial Times financial data site:

Source:  Financial Times

This chart from The Economist provides a longer term perspective and shows what happened to Greek debt as the crisis unfolded:

Source:  The Economist 10/27/2011
CLICK IMAGE TO ENLARGE As an aside, I highly recommend picking up from time to time both of the publications mentioned here.  You'll come to understand how U.S. centric the views are that are reported and editorialized on by the U.S. press - the rest of the world sees many events from a completely different perspective.


  1. I think remains to be seen if the EU can really flesh out this plan and make it stick. I'm surprised Italian bond yields are as low as 6%.

  2. nice cartoon guy! thanks for the link :)

  3. I'm surprised they could come to an agreement considering Merkel, Sarkozy and Berlusconi can't stand each other!

    Yesterday's rally was one hell of a rally!

  4. Thanks for the comments! Execution is the key and it will be interesting. Thanks to Lori for designing my DIY Investor guy.
    I agree its been " hell of a rally". I'm glad my clients came through it invested in line with a well defined asset allocation. I'm reading one blog that goes on and on about how buy-and-hold is dead and yet their tactical allocation model has been out of the market throughout the rally. Another example of those who think they are smarter than the collective wisdom of the market - and their clients pay!

  5. I'm surprised that they could come to an agreement too. I wonder how the selling of this plan is going to work: getting banks to write off that much debt and convincing constituents that this will be a lasting solution.