As Asia joins the Euro sentiment, where Hang Seng is down 5%, expect more volatility ahead. Italy is the epicentre of this “latest” renewed fears. We have been covering the Italian theme for quite some time, and pointing to the many threats we face from an implosion of the countries debt and economy. Italy is simply too big to bail out. Yesterday’s sharp spike in Italian rates, made investors very jittery, especially as the short dated maturities traded higher than the longer maturities, and we got that famous inverted curve.
Bloomberg reports on the Italian developments;
The biggest signal yet that the single currency’s third- largest economy is falling prey to its two-year debt crisis forces German ChancellorAngela Merkel, European Central Bank President Mario Draghi and their peers to decide just how far they’re willing to go to defend the euro.
“The market is testing the commitment of the euro zone’s stewards,” said Eric Chaney, Paris-based chief economist at insurer AXA SA and a former official in the French Finance Ministry. “Italy is the real crisis battleground.”
At 1.9 trillion euros ($2.6 trillion), Italy’s debt exceeds that of Greece,Spain, Portugal and Ireland combined, though unlike those nations, it has systemic importance as the world’s third-largest bond market and eighth-biggest economy. Berlusconi’s offer to quit has still left his nation struggling to produce a government stable enough to deliver austerity after LCH Clearnet SA raised the deposit it demands for trading Italian securities.
…and that inverted curve below.