Tuesday, November 1, 2011

Stress Indicators

Yield on Greek 1-year note:
203 percent!

Now it takes only six months to double your money lending it short-term to Greece (assuming, of course, that Greece decides to pay you back when the note is due). Of course, you already knew that Greece is toast. But did you know that Italy's debt is also shaky? At six times the GDP, that would make Italy Texas toast.

Italy's line in the sand is 6 percent on the ten-year bond. When BTPs hit that level in July, the Euro-elite summited to announce a plan for backstopping the PIIGies' sovereign debt. Confidence returned [see graph below], but only briefly. The latest assault on 6 percent produced another summit last week. This time the powers-that-be have not been able to talk yields down. Italy is simply not growing fast enough to service its debt at these rates. It looks like the European Union's attempt to ring-fence Greece is failing.

Yield on Italian ten-year bond:
6+ percent and rising.

Warns ZeroHedge:

Keep a very, very close eye on the Italian bond spread, because if Italy falls, Europe falls, and with it fall not only all the largely undercapitalized French banks (all of them), but the US banks that have not tens, but hundreds of billions of gross CDS exposure facing them, which at that point will be perfectly unhedged as all their transatlantic counterparties will be in the same boat as MF Global.

Even uber-Keynesian Paul Krugman is throwing in the towel:

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