ULTRA-DOOM!!! Italy's 10 year bond rate breaches 7%

[russell]

Tea boy?

No I was his assistant, I was acting tea bag strainer for a few months, but it was a trick to make me work more for less.

[CheeseSlice]

Italy Govt Bonds 10 Year Gross Yield Analysis - GBTPGR10 - Bloomberg

For those of us less savvy on government bond markets, what does this mean?

Can't they just move away from selling bonds and onto credit cards?
0% balance transfer deals to sort out the rollover problem, and 0% on purchases to fund more bunga bunga party extravaganzas?

[sasguru]

For those of us less savvy on government bond markets, what does this mean?

Can't they just move away from selling bonds and onto credit cards?
0% balance transfer deals to sort out the rollover problem, and 0% on purchases to fund more bunga bunga party extravaganzas?

It simply means investors are scared that Italian government debt is unsafe (or simply seee better places to put their money) and so the markets are demanding Italy pay 7% interest on its debts (loans if you like).
Now if you owe trillions, paying 7% is not doable, as interest payments are in the billions a year.
That's the gist, there are various subtleties.

[aussielong]

For those of us less savvy on government bond markets, what does this mean?

Italy's govt 10 yr bonds are trading at 7% yield due to reduced demand causing the price to drop (and yield to rise). When they issue more 10 yr bonds, they will have to offer at least 7% coupon on them or nobody will buy them. When they issue a bond they receive cash and pay the coupon interest for that. So their cost of borrowing is going up.

[suityou01]

It simply means investors are scared that Italian government debt is unsafe (or simply seee better places to put their money) and so the markets are demanding Italy pay 7% interest on its debts (loans if you like).
Now if you owe trillions, paying 7% is not doable, as interest payments are in the billions a year.
That's the gist, there are various subtleties.

To add to that, Italy's bond market makes Greece's look like spare change found down the back of the couch. Looking forward, this EFSF is screwed, can you imagine any of the BRIC countries wanting to invest in that now we have Italy going down the tubes as well?

Greek default, Italy default ........... next!!

[Mich the Tester]

Italy's govt 10 yr bonds are trading at 7% yield due to reduced demand causing the price to drop (and yield to rise). When they issue more 10 yr bonds, they will have to offer at least 7% coupon on them or nobody will buy them. When they issue a bond they receive cash and pay the coupon interest for that. So their cost of borrowing is going up...

...making it more likely that they can't maintain the payments on the money they do borrow, thereby forcing the yields even higher, making it even more likely they can't pay, and ultimately the holders of those bonds lose their money, or the public get sick of the whole bloody thing and revolt, and the holders of bonds lose their money. It all looks to me like a self fulfilling prophecy, and while I'm generally a supporter or free markets, I can understand why the middle classes in Europe and the US are starting to question the wisdom of it all.

[CheeseSlice]

Looking forward, this EFSF is screwed, can you imagine any of the BRIC countries wanting to invest in that now we have Italy going down the tubes as well?

Greek default, Italy default ........... next!!

So maybe Sasguru was right the other day to suggest ECB will have to start up the printing press.... there would seem to be no other way out

[russell]

To add to that, Italy's bond market makes Greece's look like spare change found down the back of the couch. Looking forward, this EFSF is screwed, can you imagine any of the BRIC countries wanting to invest in that now we have Italy going down the tubes as well?

Greek default, Italy default ........... next!!

Spain?

SPANISH GOVERNMENT GENERIC BONDS - 10 YR NOTE Analysis - GSPG10YR - Bloomberg

[suityou01]

So maybe Sasguru was right the other day to suggest ECB will have to start up the printing press.... there would seem to be no other way out

Either that or drop interest rates. The head of the ECB the other day said repeatedly "it's not in the treaty" meaning the ECB can't spark up the printing presses. If you can't print it, you need to "leverage" what you do have, ie pass the begging bowl round to the BRIC countries.

Would you invest in a bailout fund that would just get spunked on interest repayments?

[Mich the Tester]

Would you invest in a bailout fund that would just get spunked on interest repayments?

Now why is it necessary for people to use this macho language when talking about finance?