MArkets took another dip lower as worries continued over Italian debt levels. Bunds are flirting with all time highs again as we find resistance around 139.06 today. The Euro is heading back down towards 1.35 against the dollar, but its a seen it all before type sceario. There isnt a real push one way or the other and we just playing in a range. The stock markets have rallied quite a bit since the begining of october so it isn't surprising we are consolidating around these levels.
The move today is due to two things: a failed Spanish auction, which sold €3.2 billion of bills, below the €3.5 billion target, with the yield soaring to 5.02% from 3.61% at Oct. auction leading to Spanish 2-, 10-yr yield spreads to Germany both significantly wider to records. The second main factor is the realization that Mario Monti is not the second coming and will in fact face major resistance to form a government. Bloomberg reports: "Monti, a former European Union competition commissioner, struggled to get political parties to agree to participate in his so-called technical Cabinet during talks in Rome yesterday. A government lacking political representation will find it harder to muster support from the parties in parliament to pass unpopular laws. Monti said he’ll conclude his talks today." And if Monti can't do it, nobody can. Which explains why the fulcrum European security, the Italian 10 year BTPs, just fell off a cliff, and is now yielding back over 7% at a euro price of under 85 cents.
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