Italian Bond Sale: A Closer Look

Source: Istat, IMF, 2012 Est- Global Economic Perspective

 On Wednesday 9 billion euros of Italian bonds will be sold. Italy is planning to sell 9 billion euros of 179-day bills and possibly as high as 2.5 billion euros of zero-coupon 2013 bonds today. Italy will auction as high as 8.5 billion euros of debt due in 2014, 2018, 2021 and 2022 later on Thursday.

The Italian Treasury announced that a minimum of 40 billion euros ($52 billion) in bond and note sales will occur in the first quarter of 2012.

Italy needs to sell nearly 450 billion euros of debt next year to pay for maturing bonds and bills and to support the government’s large budget deficit.

In the Euro zone there are 230 billion euros of bank bonds, 300 billion euros in government bonds, and over 200 billion euros in collateralized debt that is set to mature in the first quarter of 2012.

Currently, Italy’s 10 yr. bond yield is 7.0%.

Ten year bond yields over 7% are generally considered to be high risk and worry the markets. A yield over 7% for a sustained period is considered to be the breaking point for a government bailout. A few other euro zone countries have already sought bailouts after their 10 year bond yields remained in the 7% range.

In comparison, Spain’s 10 yr. bond yield is currently 5.34% while France’s is 2.99%.

Where’s the Growth occurring in Italy?

Edward Hugh, who has been characterized as the “blog prophet of doom for the Euro Zone” according to the New York Times, wrote an insightful post, Italy Braces for the Full Monti, at the blog A Fistful of Euros which I recommend to anyone who is seriously interested in examing the problems that Italy faces as it sobers up and comes to terms with austerity measures, large sovereign debts, and weak growth prospects.

Italy’s GDP growth chart (see blow chart) is not looking promising for any future Italian bond holder. Italy is currently weighing down the euro zone with GDP contraction and recession, even with their fiscal austerity measures fully undertaken.

 

Source: Istat, IMF, 2012 est- Global Economic Perspective

Italy’s Labor costs are significantly higher that Germany’s labor costs

Source: Eurostat- Global Economic Perspective

 

About Johnathan Schweitzer 1562 Articles
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