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Tuesday, November 08, 2011

L'amara vita

Italians aren't sweating this, but the European banks certainly are:
The Italian 5-year is yielding 6.87% while the 10 year is now 6.77%. The curve-inversion is very bad and is a stark warning: Get ready. This has not yet managed to get to the 2yr (6.38%) Pundits have opined that due to the relatively long duration of the bond portfolio outstanding it's not a "big deal." They're wrong.
This is a very big deal. One year ago, the Italian 2-year was at 2.010 and the 10-year was at 3.924 The Italian 2-year is now rapidly approaching where the Portuguese 10-year was one year ago. What this indicates is that the end of the Euro and the end of the EU in its present form will likely take place within one year. Greece and Ireland were sideshows. Italy is the main event.

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