On the heels of the China SAFE comments to calm nerves about their euro holding intentions and the planned 25b euros of spending cuts, Italy successfully sold 3 yr, 7 yr and 10 yr paper today. Yields rose for the 3 yr and 7 yr relative to the auctions of the past few mo’s but the 10 yr yield was 2 bps below the Apr one and just 11 bps above the one in Mar. Italy 5 yr CDS is down by 15 bps. The main question of whether the euro zone bailout money will need to be tapped will depend on whether countries can access the capital markets on their own and for now they can, except Greece. The other issue though lies with banks in Greece, Portugal and Spain that cannot get access to short term funding and have to rely mostly on their deposits. US$ 3 mo LIBOR fell a hair and for only the 3rd time since early Feb. In a sign of inflation pressure to come due to a weak currency, Apr German import prices rose 7.9% y/o/y, above expectations of up 7.1%.
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