Italian bonds/nothing is free

If the purpose of yesterday’s announced plan in Europe ex the details, the framework of which we’ve know for days, was meant to protect Italy and Spain’s access to inexpensive funding, the immediate response is a thumbs down in the market for Italian and Spanish debt. Yields are jumping for both as Italy sold debt with maturities stretching out 10 years. For the longest maturity, Italy has to pay a 6.06% coupon and the auction had a bid to cover of just 1.27. Italy raised 7.93b euros, most but not all of the 8.5b euros they hoped for. The action in Italian bonds however is not a response to the EU’s plans, its the lack of faith that Italy itself will have the political will in facing the obstacles to growth in their economic system that will hamper their ability to pay down debt. In the category that nothing is for free, in response to the push on the part of US Gov’t officials to expand the HARP program to allow more home owners with underwater mortgages to refinance, the Norway sovereign wealth fund said they sold all of their FNM and FRE MBS securities due to the heightened pre payment risks

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