From the article.
So instead of selling, Italian banks are doing all they can to dodecatuple down and…buy!?
Right… Thank you for putting that target sign on your back.
– “Sold To You”: European Banks Quietly Dumping €300 Billion In Italian Debt (ZeroHedge, Nov. 11, 2011):
While the market is ripping today on absolutely nothing (earlier we noted the rotation of muppet X with muppet Y – this changes nothing but who cares), BTPs are soaring, and confusion is prevalent, one thing is certain: we now know who is not buying Italian bonds. As IFR reports, “European banks are planning to dump more of the €300bn they own in Italian government debt, as they seek to pre-empt a worsening of the region’s debt crisis and avoid crippling writedowns – a move that could scupper the European Central Bank’s efforts to bring down soaring yields. Still reeling from heavy losses on money they lent to Greece, lenders are keen not to make the same mistake twice.Then, under the pressure of governments and a hope that credit default swaps would protect them against heavy losses, they held on until it was too late to sell.” And for our European readers who may be wondering who the dumb money will be as this tsellnami unleashes, we have one word: you. “With the ECB providing a bid for Italian bonds that might not otherwise exist, board members at some of Europe’s largest bank say now is the time to accelerate disposals. Many are also reversing long-standing policies of buying into new Italian bond issues, denying Rome an important base of support.” And there you have your explanation for today’s action – yet another headfake to get the idiot money foaming at the mouths while the insolvent banks quietly dump everything, sending the EURUSD once again higher as EUR repatriation resumes, this time with feeling.
As a reminder, Germany has made it an explicit condition of its participation in the now irrelevant EFSF that the SMP program which is the only program currently functioning to provide secondary market support, be unwound shortly. The SMP currently has just under €200 billion in total bond holdings. Does anyone really think Germany will allow the monetization fund to increase by 150% before Merkel says something? We doubt it. But we know one party that would be delighted if the SMP were to monetize everything: PIMCO parent Allianz, which borrowed a line right out of BlackRock and told the market it is effectively an idiot, and does not reflect fundamentals. Via the FT: “Allianz insisted it was unworried by the political and financial turmoil in Italy as the insurer, Europe’s largest by market capitalisation, suffered from the impact of the eurozone crisis on its bond investments and corporate holdings. The German group – which considers Italy a “second home market”, according to Oliver Bäte, chief financial officer – has some of the biggest sovereign exposure to Italy of any non-Italian financial institution, with government bonds worth €25.6bn at the end of the third quarter, equal to more than 6 per cent of the company’s €413bn fixed income portfolio.” Is it clear now why the EFSF as a €1 trillion vacuum cleaner idea came straight out of Allianz? And is it clear now who has the most to lose with the failure of the EFSF as a multifunctional Swiss Army bailout knife?
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