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BusinessDesk: Italians have debt-sale 'success', but ECB balance sheet grows faster than expected

BusinessDesk: Italians have debt-sale 'success', but ECB balance sheet grows faster than expected

Italy's success at a debt auction today failed to stem concern about the hurdles ahead for the fiscally challenged country that needs to raise about 450 billion euros next year, highlighting the substantial challenges facing the euro zone area.

Underpinning those worries was a report that said the European Central Bank’s balance sheet climbed to a record after it lent financial institutions more money last week.

“The euphoria from this morning was quickly replaced once people realised that the ECB balance sheet was bigger than expected which once again kind of sets a negative tone that the crisis is maybe worse than expected,” Ken Polcari, a managing director at ICAP’s equities unit in New York, told Bloomberg News.

Stocks dropped in Europe and on Wall Street, as did the euro. The Stoxx 600 Index ended the day with a 0.7 percent decline. The euro was last 1 percent weaker at US$1.2937. It was 0.9 percent lower at 100.91 yen, after hitting a 10-year low earlier in the session.

Italy paid an average rate of 3.25 percent to sell 9 billion euros of six-month BOT bills, down from a euro lifetime record of 6.50 percent a month earlier, according to Reuters. It also sold 1.7 billion euros of 24-month, zero-coupon bonds, near the low end of its target range. The yield fell to 4.85 percent, from 7.8 percent a month ago.

There's another test tomorrow, with a scheduled sale of between 5 billion euros and 8 billion euros of bonds maturing in three, seven and 10 years.

"This is the first piece of good news for Italy's bond market since the crisis erupted [for Rome] in July," Nicholas Spiro of Spiro Sovereign Strategy, told Reuters.

"While today's auction was supposed to be the less challenging of this week's two sales given the shorter maturity of the debt on offer and the predominantly domestic buyer base, it's still a success."

Even so, it failed to lift Wall Street where investors remain just as concerned about the impact of Europe's troubles on corporate results and economic growth.

In afternoon trading in New York, the Dow Jones Industrial Average dropped 0.97 percent, the Standard & Poor's 500 Index shed 1.06 percent and the Nasdaq Composite Index fell 1.02 percent. Trading volumes were thin with many traders on holiday until the new year.

Including today and tomorrow's auctions, Italy will have raised around 430 billion euros this year on the debt markets, according to AFP, adding that in 2012 it will have to raise 450 billion euros.

“If the euro zone banks are too afraid to lend, that does not bode well for future growth,” Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, told Bloomberg News. “The banks are not borrowing from the ECB in order to spur lending. It’s to shore up their balance sheets. That could lead to a credit contraction.”

There are, however, clear indications that underpin a sense of optimism about the year ahead such as a slew of initial public offerings by Internet companies.

With Facebook considering the largest Internet initial public offering on record and regulatory filings showing that at least 14 other Web-related companies are planning sales, the industry may raise US$11 billion next year, according to data compiled by Bloomberg.

That would be the most since US$18.5 billion of IPOs in 1999, just before the dot-com bubble burst, according to Bloomberg News.


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Some context please..

"Italy sold €9bn of six-month bills at an average rate of 3.25pc,..."

That's six *months*.   That's an almost meaningless duration.   Even Greece can borrow six-month money. Also, they sold E1.7bn when aiming to sell E2.5bn.

The real Bond to watch is the ten-year Bond, and that is still at 7%.


Your absolutely right  the real test is the 10 year auction. The drop in yield on the 6mth sale looked highly suspicious. 


Italy's bond rate has halved in just two months ...... proving yet again what a waste of time all the gnashing of teeth and wailing of " Eurogeddon " has been .....


Another Dot.Com bubbile. HAHAHAHAHAHAHHA


 "Bond traders, who said they had seen signs that the European Central Bank had been buying Italy's bonds after the auction to hold down yields, said such high borrowing costs would keep pressure on Italy as it prepares to raise €450bn on the debt markets in 2012 - €53bn of it next month."

Remember...the ECB laws do not allow the ECB to finance sovereign to buy piigs bonds....exactly what the ECB is doing...which begs the much 'printing' is the ECB honestly doing right now and how many trillions will they 'print' in the years ahead...????

Is your brain working yet!.....ask it whether you should hold capital in Euro if the ECB is debasing the value of the money ....doh

ASK the brain whether corporates will accept payment in and or keep capital in euro...!

and from

 "A continued rise of Bonds would probably mean more worries about the Euro Crisis.
In the EURO chart, we can notice a potential Head & Shoulders pattern, which could send the EURO as low as 1.15 if the pattern holds"

but to cap it off we have a great message for the keynesians out there:

 "For Europe as a whole, it has been 40 years of unemployment. It the 1960s, European employment was high. This changed in the 1970s. Keynesian economists seem baffled by this. Keynesian policies of government deficits were supposed to end unemployment. They haven't in Europe."


Why the NZ economy

will always be a turd.

 "Keynes' theory was tied more to fiscal policy – deficits – than to monetary policy. But from the beginning of modern central banking in 1694, with the Bank of England, there was a quid pro quo between the politicians and the private owners of central banks. In exchange for the monopoly over the money supply, the central bankers promise to provide sufficient money – newly created – to buy new issues of the national debt at below-market rates. In a world in which fractional reserve banking and central banking are universally accepted, the Keynesian policy of federal deficits inevitably leads to a defense of central banking money expansion. Keynesianism and central bank inflation are a package deal"


 Oh dear oh dear oh dear

"Wolfgang Schauble said he was confident that the currency union will survive and the political measures will underpin the shattered eurozone economies. "We will be far enough along in the next 12 months that we will have banished the dangers of contagion and stabilised the eurozone," he told newspaper Handelsblatt.

As the euro plunged against the yen to its lowest level for 10 years, Mr Schauble was reported as saying he could rule out the eurozone breaking up: "According to everything that I know at the moment, yes."

Terry Smith, chief executive of Tullett Prebon, said the Mr Schauble was "talking his own book" in hoping the current agreements will save the euro. "The German finance minister has not said anything substantive which changes the situation," he told The Daily Telegraph. "If the eurozone crisis could be solved by confident pronouncements, it would already be saved. I would be shocked if Greece does not leave the eurozone in 2012 and this does not lead the markets to test the resolve to defend the positions of Portugal, Spain, Italy and, ultimately, France."