Europe again…

European Finance Ministers will hopefully agree and provide details today on the suped up EFSF with 20-30% insurance coverage on new bond issuance with a leveraging of 3-4 times. Imperative in this new entity in actually functioning as hoped will be France hanging on to its AAA credit rating which of course is very tenuous. They will also discuss national (as opposed to central euro zone) guarantees of bank debt issuance, similar to what was in place in 2008 there and in the US, to ease funding concerns. The ECB failed to fully sterilize the 203.5b euros of bond purchases they’ve conducted to date, taking in deposits of 194.2b euros. This is not the first time they’ve failed so we can’t read too much into this just yet. Some believe that 300b euros is the limit on what they will eventually be able to fully sterilize. The euro basis swap is rising to a new high but as we get to yr end, banks are doing all they can to delever and strengthen their balance sheets so tightness in interbank lending markets are a combination of general stress amongst banks but also exaggerated by yr end activity. Italy sold debt at 3 differing maturities at yields all above 7%. While the 7% threshold put Greece, Ireland and Portugal in the hands of the EU/IMF, Italy’s primary surplus can keep them away for a period of time. Belgium sold short term bills at more than double the rates of just 3 weeks ago. Nov euro zone economic confidence fell to the lowest since Nov ’09 and was a touch below estimates. I look forward to the time when my morning comments are not predominantly on Europe but who knows when that will be.

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