“On Friday, two-year Italian bond yields rose 35 basis points in one day — almost equivalent to the entire range of the year for U.S. 10-year Treasurys. This was the weakest session in five years and continued a month that’s seen these yields rise 70 basis points in total.
“Yields move inversely to a bond’s price and a spike higher is seen as investors feeling more concerned about lending to Italy’s government. More specifically, traders usually sell short-maturity paper when there are growing credit risk concerns at a sovereign level…
“Italian bonds have witnessed one of their worst trading weeks since the euro zone sovereign debt crisis, with many traders getting a stark reminder of the volatility that once characterized markets in the region.
“On Friday, two-year Italian bond yields rose 35 basis points in one day — almost equivalent to the entire range of the year for U.S. 10-year Treasurys. This was the weakest session in five years and continued a month that’s seen these yields rise 70 basis points in total.
“Yields move inversely to a bond’s price and a spike higher is seen as investors feeling more concerned about lending to Italy’s government. More specifically, traders usually sell short-maturity paper when there are growing credit risk concerns at a sovereign level.
“The original catalyst for the selling came from the populist parties hoping to take control of Italy after inconclusive elections in March. Lega and the Five Star Movement (M5S) plan to issue short-term bills to finance state activity in their economic policy proposals. Market participants were taken aback and many have interpreted that initiative as laying the foundation for a potential parallel currency in the future, further amplifying the potential new government’s collision course with the rest of Europe.
“But the fear has not been limited to short-dated paper. Ten-year Italian bonds have also came under pressure with yields topping 2.5 percent and are now trading at their widest gap with German paper in over four years.
“There is palpable anxiety in the market as Italy’s political future remains uncertain. Over the weekend, M5S and Lega looked to have failed in their bid to form a government after President Sergio Mattarella rejected their pick for economy minister due to his euroskeptic credentials. This has raised the prospect of a caretaker government to lead the country into yet another round of elections later this year…”
“Chaos ruled in Italian markets as the nation plunged deeper into political turmoil…”
https://www.bloomberg.com/…/italian-markets-jump-as…
“Spanish prime minister Mariano Rajoy will face a vote of confidence in his leadership on Friday, a showdown that threatens to end six years of centre-right government in Madrid and intensifies the political turmoil in southern Europe.”
https://www.ft.com/…/9d91b30a-6262-11e8-a39d-4df188287fff
“It’s looking more and more likely that Italy is going to have to leave the euro soon, and Italian and eurozone stocks could get clobbered. Italian banks could be hit particularly hard.”
https://seekingalpha.com/…/4177623-yields-creeping-soft…
“The need to withdraw from lax monetary policies has revived in European institutions a legitimate concern – probably 15 years too late – about the “doom loop” linking governments and banks, both held hostage by excessive debt. Over the past decade, few European governments have cut their debt burden, and with the ECB now tapering off its bond-buying program, commercial banks will now have to write down some of the government bonds held on their books.
“This could pose a real threat to the equity of some large banks. Euro area member states would find themselves in the ironic situation of offering bailouts to credit institutions that made the mistake of trusting their own governments. This devastating vicious circle is why they call it the “doom loop.””
https://www.gisreportsonline.com/the-doom-loop,2567,c.html
“President Erdogan has urged Turkish citizens to convert their savings into the country’s struggling currency in an attempt to shore up the economy before next month’s elections. At a rally in the eastern city of Erzurum on Saturday, the president said: “Brothers and sisters, hiding dollars and euros under your pillow: go and invest the savings in lira. Together we will fight speculators.””
https://www.thetimes.co.uk/…/turkish-savers-urged-to…
“Brazilian equities plunged more than 4 percent on Monday to their lowest level this year, as an ongoing truckers’ strike hit all sectors and state oil company Petroleo Brasileiro SA had to adopt a number of policies unpopular with traders.”
https://www.reuters.com/…/emerging-markets-brazil…
“Five years after the 2013 “taper tantrum”, the world is on the brink of yet another emerging market meltdown whose twin epicentres are now Istanbul’s Bosphorus and the Argentine pampas. I expect another 1980s-style intercontinental default wave in theemerging markets. Entire countries and banking systems will go bankrupt or, as my Chicago futures trading cronies used to put it, belly up. I predict the mother of all debt restructuring.”
https://www.khaleejtimes.com/…/is-an-emerging-market…
“While oil traders focus on whether OPEC/Russia will offset outages in Venezuela and Iran, there are cracks forming in the economies of emerging markets, which could threaten to derail the oil market, and do more to drag down oil prices than production increases from the OPEC+ coalition.”
https://oilprice.com/…/Emerging-Market-Meltdown-Could…
“The gaping holes on banks’ balance sheets are now seen to be sapping away at the vitals of the Indian economy. Of the 28 banks which reported their financial results for the quarter ended March 2018, 13 have reported losses.”
https://www.telegraphindia.com/…/bank-crisis-sours…
“Pakistan expects to obtain fresh Chinese loans worth $1-2 billion to help it avert a balance of payments crisis, government sources said, in another sign of Islamabad’s growing reliance on Beijing for financial support.”
https://profit.pakistantoday.com.pk/…/pakistan-seeks…/
“While China has started to recognise its credit problem and is addressing it, its responses are too late and too slow to avert a crisis. The main debate should be over when, and not if, a Chinese financial crisis will hit.”
https://www.lowyinstitute.org/…/china-looming-financial…
“Bond default marks the third time this year that an Asian company has defaulted on its U.S. dollar debt.”
https://www.wsj.com/…/chinese-energy-companys-missed…
“Indonesia’s rupiah has been growing worryingly weak, and the country’s central bank has seen little success after multiple attempts to prop up the currency.”
https://www.cnbc.com/…/bank-indonesia-reviews-policy-on…
“The Philippines’ debt affordability metrics are at risk amid currency pressures, Moody’s Investors Service said. Countries in the Asia-Pacific region, Moody’s said in a report released over the weekend, were over the past few months particularly susceptible to currency depreciation against the dollar.”
http://www.manilatimes.net/ph-debt-affordability…/401633/
“While the on-again, off-again threat of an all-in trade war continues to grab the headlines, a more subtle shift is pointing to the brakes being applied the global economy. A number of important measures of international trade have suddenly weakened.
“As well, industrial activity as measured by purchasing managers’ index surveys have backed up the idea of the so-called synchronized growth spurt is starting to look like a synchronized slowdown, ABC online reported.”
https://financialtribune.com/…/global-trade-looks-like…
“Gordon [Brown] and I were faced with the imminent collapse of what was then the world’s biggest bank, we were very clear that if RBS had collapsed, it would have brought down the entire system with it,” Darling told Business Insider in an interview.
“Had the government failed to bail RBS out, Darling said, it “would have had to close its doors, switch off the cash machines.”
“That in turn, Darling said, would have caused “complete panic” among the British public.”
http://uk.businessinsider.com/alistair-darling-uk…
“A deepening political crisis in Italy, the euro zone’s third biggest economy, fueled a selloff in Italian assets and the euro on Tuesday that was reminiscent of the euro zone debt crisis of 2010-2012.
“Short-term Italian bond yields were set for their biggest one-day jump since 1992, while Italian and wider euro zone banking stocks headed for their worst day since August 2016 . At an auction of six-month debt, the government had to pay investors the highest yield in more than five years.”
https://www.businessworld.ie/…/Italian-bonds-suffer…
