To the question of what gets Europe out of this mess, Mario Monti, the new Italian PM said it simply when referring to Italy’s 120% debt to GDP ratio, exactly where it was 20 yrs ago, “We must convince investors that we can reduce it.” Growth, debt paydown, and debt write off is what must be done. ECB money printing is just a short term buzz. It will feel real good temporarily if it happens but it doesn’t address the heart of the debt disease. Spain sold 10 yr bonds at a yield of 6.98%, up from a similar maturity last month sold at a yield of 5.43%. The bid to cover of 1.54 was below the 1.76 last month and the total amount sold of 3.56b euros was below the maximum of 4b they hoped to sell. Spanish yields have officially joined the unfortunate parabolic club. France sold debt too at yields 40-50 bps above last month. French, Belgium and Spanish CDS are rising to record highs. French CDS in particular is now above Czech Republic, Columbia, Indonesia and South Africa and is only 10 bps from Russia. The euro basis swap is more expensive by another 8 bps and US$ 3 mo LIBOR had its biggest jump since Aug. Keep an eye on Fed Vice Chairman Dudley today as he speaks at 12:50pm on the economy. With one month before the next FOMC meeting, we’ll see if he steps up the QE3 talk
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