– Snap Reactions To Italy’s €5 Billion Bill Auction, Which Reeks Of Illegal ECB Intervention (ZeroHedge, Nov. 10, 2011):
Earlier today Italy sold €5 billion in 1 year Bills at an average yield of 6.087%, the highest since September 1997, and almost 3% higher compared to a month ago, when it prices at 3.570%. Yet there was a stunning twist: the 1 Year was trading at a whopping 7.75% in the gray market minutes before the auction, or almost 200 bps wide of the auction result, something which never happens under normal conditions unless the invisible hand of the central bank has anything to say about it. Now we know already that the ECB stepped in to aggressively mop up Italian bonds in the secondary market immediately after the auction to bring 10 year yields below 7%, however briefly: the bond has since widened above that level once again. Yet what is shocking is the primary market strength for the 1 year: since the ECB is prohibited by law from intervening in the primary, auction market, we wonder just what illegal backdoor funding scheme the ECB has concocted with friendly banks in order to have the auction price where it did, and how much money was transferred by back door channels to keep Europe from imploding one more day. Considering that the EURUSD was trading below 1.35 just prior to the auction at around 3 am, and has since regained losses, just as we expected yesterday, please remind us to add this latest illegal central bank intervention feature to the list of things to uncover once Europe blows up and the ECB’s secret trading records are laid out for all to see. In the meantime, here is the Wall Street snap reaction to the Bill auction.
From Reuters:
RICHARD MCGUIRE, RATE STRATEGIST, RABOBANK, LONDON
“This represents the highest such yield since September 1997 and although favourable relative to that of the Oct. 12s, which had briefly broken through 8.0 percent in the secondary market this morning, certainly does nothing to dispel the concern that Italy’s debt costs have moved firmly into unsustainable territory.”
MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON
“It’s certainly gone a lot better than the secondary market levels were tending to indicate, but the spreads are so wide that you always have to take secondary market indications with a pinch of salt. It is better than expected but still not sustainable. There will be some relief that it hasn’t printed with a 7 percent handle but the idea that Italy can carry on with 6.1 percent for one-year paper is a joke.”
ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDM
“For T-Bills there is always domestic demand involved so it’s a lot easier for Italy to find buyers to lower the exposure. But the main point to be concerned about here is the huge 250 basis point jump in yields compared to the last time to roughly 6 percent. If this carries on then next month’s yield could be 8.5 percent, which cannot happen.”
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, CIB
“Very solid, far better than was feared yesterday. In the grey market the paper rallied over 120 basis points before the auction, and it’s come through the market by a considerable margin. The micro view is supportive, but this makes no difference to the macro view of Italian rates trending sharply higher. The pressure is still on for policymakers to take aggressive action to increase confidence and stop the market breaking down further.”
NEWEDGE BROKERAGE
“Net flows and interesting yields have supported demand. Domestic retailers have probably supported demand as they usually roll their positions.”
Earlier today Italy sold €5 billion in 1 year Bills at an average yield of 6.087%, the highest since September 1997, and almost 3% higher compared to a month ago, when it prices at 3.570%. Yet there was a stunning twist: the 1 Year was trading at a whopping 7.75% in the gray market minutes before the auction, or almost 200 bps wide of the auction result, something which never happens under normal conditions unless the invisible hand of the central bank has anything to say about it. Now we know already that the ECB stepped in to aggressively mop up Italian bonds in the secondary market immediately after the auction to bring 10 year yields below 7%, however briefly: the bond has since widened above that level once again. Yet what is shocking is the primary market strength for the 1 year: since the ECB is prohibited by law from intervening in the primary, auction market, we wonder just what illegal backdoor funding scheme the ECB has concocted with friendly banks in order to have the auction price where it did, and how much money was transferred by back door channels to keep Europe from imploding one more day. Considering that the EURUSD was trading below 1.35 just prior to the auction at around 3 am, and has since regained losses, just as we expected yesterday, please remind us to add this latest illegal central bank intervention feature to the list of things to uncover once Europe blows up and the ECB’s secret trading records are laid out for all to see. In the meantime, here is the Wall Street snap reaction to the Bill auction.
From Reuters:
RICHARD MCGUIRE, RATE STRATEGIST, RABOBANK, LONDON
“This represents the highest such yield since September 1997 and although favourable relative to that of the Oct. 12s, which had briefly broken through 8.0 percent in the secondary market this morning, certainly does nothing to dispel the concern that Italy’s debt costs have moved firmly into unsustainable territory.”
MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON
“It’s certainly gone a lot better than the secondary market levels were tending to indicate, but the spreads are so wide that you always have to take secondary market indications with a pinch of salt. It is better than expected but still not sustainable. There will be some relief that it hasn’t printed with a 7 percent handle but the idea that Italy can carry on with 6.1 percent for one-year paper is a joke.”
ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDM
“For T-Bills there is always domestic demand involved so it’s a lot easier for Italy to find buyers to lower the exposure. But the main point to be concerned about here is the huge 250 basis point jump in yields compared to the last time to roughly 6 percent. If this carries on then next month’s yield could be 8.5 percent, which cannot happen.”
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, CIB
“Very solid, far better than was feared yesterday. In the grey market the paper rallied over 120 basis points before the auction, and it’s come through the market by a considerable margin. The micro view is supportive, but this makes no difference to the macro view of Italian rates trending sharply higher. The pressure is still on for policymakers to take aggressive action to increase confidence and stop the market breaking down further.”
NEWEDGE BROKERAGE
“Net flows and interesting yields have supported demand. Domestic retailers have probably supported demand as they usually roll their positions.”
This is a giant shell game, and soon, there will be no beans left to hide under the shells. In 1929, investors leveraged their money 9:1. If one had $100.00 in a margin account, one could purchase $190.00 worth of stock. As long as the market went up, everyone was making money……all on paper. When the market finally crashed from the low substance of real money, the margin calls came. Investors raced to the banks to draw out money to save their portfolios and the run on the banks was on. The banks had no money, either, and collapsed. Back then, our money was backed with gold, we were the world’s largest lending nation, and an emerging mfg power. Today, it is the opposite.
Now, it is standard operating procedure to take $100 Million & leverage it into $100 Billion, 1000:1. There is much less money in reality than on paper. The global economy is estimated between $50-65 Trillion a year. Wall Street shadow banking alone is extimated at $600-800 Trillion.
The only real growth in the economies of Western Europe and the USA is DEBT….all created by the bankers and moneychangers.
This shuck & jive game cannot go on much longer. The sale of the NYSE to Germany for NO CASH, All Stock was covered up by MSM, but that is a huge story…..money is leaving this country by the billions every week. The US now holds 40% to Germany’s 60%.
80% of all transactions on the big board are High Frequency….a few individuals handling hundreds of millions in funds buy and sell large amounts of stock in less than 8 seconds. That isn’t investing, it is skimming, and used to be illegal. We have crooks in control of the global economy. Until some sanity is restored by proper regulations, it will only get worse.
Thanks for an excellent article on a very important subject. I will (as alwasys) send this article to others and urge all readers to do the same. MSM is controlled by 3 corporations, and their reporting is all corporate spin. Thanks to websites like this one, people who are willing to search can find answers online.
Sincerely,
Marilyn Gjerdrum
It may not be realistic to speculate over back door / grey market dealings in advance of a central bank intervention that seemed pretty easily anticipated, given the macro state of the Italian political structure – this displacement of Berlusconi certainly looks to be more far reaching than was the brief tenure of Mr. Prodi. The Economist Intelligence Unit was predicting this a couple of weeks back.
But in such an exploration, one needn’t presume the ECB broke the law – there are other less constrained sovereign actors on the playing field. The reference to “the highest since September 1997” brings to mind the Bhat crisis that ensued in the weeks following that instance. It shouldn’t any longer come as a surprise to hear that financial cascade was triggered in by China calling its Japan notes as part of the fiscal ascendancy demonstration it staged in the wake of the July 1997 Hong Kong handover.
This to say that if you want to speculate about grey market assistance with the intervention, a sovereign central bank (particularly one with a few trillion in foreign dollar reserves on hand) seem like an eligible actor, under the right terms.