Italy – Spain rift over contagion risk [Sober risk + The Slog]
Worried about possible contagion from Spain, Italy’s PM Mario Monti expressed his concerns a couple of weeks ago at a conference.
The Telegraph: “It [Spain] certainly made decisive reform of the labour market but it did not pay the same attention to public finances,” Mr Monti said at a conference in Cernobbbio, Italy.
“This is causing us a big concern because their yields are rising and it wouldn’t take much to recreate the contagion that would also involve us,” Mr Monti added.
Monti had since apologized. France had made similar comments with hopes of pressuring Spain to focus more on fiscal consolidation. Clearly annoyed, the Spanish Prime Minister Mariano Rajoy fired back today.
REVEALED: BLATANT MANIPULATION OF SPANISH, ITALIAN AND GERMAN BOND YIELDS TODAY
At 9:27 AM Spanish industrial production figures for February released, showing the appalling state of its economy, falling a monthly 3% vs. -2.5% in January.
At 9:48 AM in an €11B auction of Italian 12- and 3-month debt, bond yields leap upwards. The 1-year doubles to 2.84% from 1.405% in a previous sale in March, and 3-month paper zooms to 1.25% from 0.49%.
It’s looking pretty bloody out there. But there will be no help forthcoming from Mario Draghi’s ECB, right, because the bond-buying programme is at an end.
10:03 AM Yields on 10-year Italian and Spanish bonds suddenly plummet….by (respectively) 18 basis points and 14 basis points.
Apart from 15 minutes, nothing has happened, nothing has changed. No ClubMed miracle discovery of gold-plated uranium has come to light. And yet, in that same 15 minutes – when equally, no news of a nuclear attack on Berlin has broken – German yields, which had been dropping, suddenly zap up 15 points. (Which, on a total level of 1.79%, is some going).
Now you know why Merkel and Schauble were so bitterly pissed off when they realised how the politically adept Mario Draghi had turned their central bank into his ECB. You buy a little here, you sell a little there….and hey presto, eurozone bond spreads fall. On to the next stage….