One day at a time for the Italian gov’t

With a daunting amount of debt maturities in 2012 (340b euros) in light of current market circumstances, one day at a time is the focus of the Italian government. After selling their maximum target of 12b euros of bills yesterday, they sold the 4.75b euros of longer term maturities today that they hoped to, two issues in 2014 and one in 2018. Coincident with this, Italian 2 yr yields are falling to the lowest since Oct and the 10 yr yield is down to a one month low. After falling yesterday, the amount of euros deposited with the ECB overnight by European banks rose to a new record of 489.9b and now matches the total amount of funds borrowed for 3 years from the ECB last month. Draghi yesterday claimed that the money the banks borrowed for 3 years are not being redeposited back with the ECB but it doesn’t matter with money being fungible. It is still a clear sign that shrinking balance sheets and funding 2012 maturities are the main focus of European banks. The only thing to note in Asia was the Bank of Korea left interest rates unchanged as expected and China’s FX reserves fell to a 7 month low at $3.181T. In the US, as seen by the market action in JPM in response to earnings, all eyes over the next two weeks will be how corporate America is dealing with a still very challenging global economic environment.

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