Italy Cancels August Bond Auction Citing Fat Wallet

Position: Short Italy (EWI)


Both Italy and Austria today announced they were putting off plans to borrow cash in the coming month. Neither of them cited market conditions.

 

As picked up by the Dow Jones Newswires:

 

Italy will cancel its mid-month (August 12th) auction for medium and long-term bonds, known as BTPs, “considering the large cash availability and the limited borrowing requirement,” the Treasury said in a statement Monday.

 

This news is deeply concerning given the critical nature of the country’s funding needs. In the next months alone (see chart below) Italy will be burning through 134 Billion EUR in principal and interest payments coming due. This means that the country will have to rely even more on successful future bond auctions (ie sufficient demand at yields not significantly over previous auctions) to fund its costs. This is a risk set-up we don’t like considering that bond auctions across the periphery have trended higher throughout most of the year, and that both the ECB and China have been forced or cajoled into being “hidden” actors to ensure demand. 

 

Italy Cancels August Bond Auction Citing Fat Wallet - 1. H

 

The country’s funding issues come on the backdrop of PM Berlusconi’s government that is mired in scandal, including his finance minister Tremonti; an economy 3X the size of the combined economies of Greece, Portugal, and Ireland with some €1.9 Trillion of debt, or 120% of GDP (ranking Italy second behind Greece (144%) for the largest debt as a % of GDP in the Eurozone) that current bailout facilities are not prepared to handle; and a banking industry that was largely unscathed by the bank stress tests, but is highly levered to the rest of the periphery.

 

While yields on the 10YR Italian government bond have come down from the 6% level in recent days (historically an important breakout line for Greece, Ireland, and Portugal that necessitated bailouts) and Italian CDS took a massive dive (-55bps) on Friday following late Thursday’s announcement of a second Greece bailout, we by no means think Italy is out of the sovereign debt spotlight, and today’s signal from Italy’s Treasury does more harm than good to a very fragile investment community.  

 

We remain short Italy via the etf EWI in the Hedgeye Virtual Portfolio.

 

Matthew Hedrick

Analyst

 


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more