With Italian government bond yields, it’s a case of “another day, another record”. Here are a few charts.

Italy 2-Year Government Bond Yield

Italy 3-Year Government Bond Yield

Italy 5-Year Government Bond Yield

Italy 10-Year Government Bond Yield

Curve Watchers Anonymous notes that 3-year and 5-year Italian bonds now yield more than 10-year bonds, albeit by a small amount.

This is a huge red flag for Italy.

Germany 2-Year Government Bond Yield

Germany 10-Year Government Bond Yield

Curve Watchers Anonymous also notes the explosion in the 2-year bond spread between Germany and Italy, now at a whopping 5.98 percentage points and rising rapidly, exacerbating Italy’s bond rollover financing problem.

Comments from Copenhagen

Steen Jakobsen, chief economist from Saxo Bank pinged me with these comments earlier today:

Italy has 37 billion EUR of maturing debt this year alone, and 347 billion EUR next year. The average funding rate is 4.5% ish, versus the 10-year now trading at 6.77%.

Time is running out. However, we as market players tend to underestimate the political process ability to “buy time”.

If Italy makes a credible plan or short-term swaps Berlusconi for a technocrat government, they can buy some more time to put their house in order. So don’t expect this week to be the final chapter in neither Italy or Greece.

Don’t worry, there are plenty more chapters to come.

Mike “Mish” Shedlock
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