Yields on Italian bonds rose once again on Tuesday as margin requirements on those bonds rose sharply. Bloomberg reports LCH Clearnet Boosts Deposit Required for Trading Italian Government Bonds

The so-called deposit factor charged for Italian bonds due in seven-to-10 years will be raised to 11.65 percent, LCH Clearnet SA said in a document on its website dated yesterday. That compares with a charge of 6.65 percent announced in an Oct. 7 document. The additional charges will be applied from close- of-day positions today, LCH said.

Roman Empire Under Pressure

Steen Jakobsen, chief economist at Saxo Bank, pinged me with these comments.

Major investment banks calculate the “margin call” to be around 4-5 billion EUR as of tomorrow.

The Italian situation is very complicated – on one hand Berlusconi has promised to step down, on the other there are no alternatives to him in the opposition, there is no real hope for majority for “someone else”.

Berlusconi has a long history of comebacks, and being 75 years old he has little to lose. The main issue remains whether Italy truly moves forward with austerity and reforms. One without the other has no value for market and for building a fire-wall around Italy.

The facts are simple: No one but Italy itself can save Italy under present conditions.

ECB intervening is merely delaying the inevitable. Italy needs to move forward.

Only two countries has had lower growth than Italy since 2000 – Haiti and Zimbabwe!

This is the present outlook for 2011 and 2012:


A bureaucrat government in Greece and potentially Italy will not solve anything. What’s needed in both countries are:

  • A government elected to deal with crisis
  • A plan for creating growth and reforms
  • An austerity plan underwritten by politicians, labor unions and employers.

That does not seem likely for now, in either country.

At a bare minimum we will have another month of uncertainty. A concerning trivia remains in place: When a country passes 6.5% in 10 year yield – the call for help from the IMF has only been 14 days behind. Italy is different, but the timeline is running out.

Safe travels,


Mike “Mish” Shedlock
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