Lagarde prepares the Sintra edict. That is, the Bund as an implied guarantee of BTPs. best wishes

When re-reading the events with a cold mind, the impression is that a plan is laid out on a table. First, Christine Lagarde’s post-session press conference is so vague about the new anti-proliferation shield that it leaves everyone frustrated. And the Italian teams on the Bund in the danger zone, even rapidly increasing about 250 basis points. Then after less than a week of rituals If necessaryAnd the The emergency meeting of the Central Bank Councilafter which it turned out that Eurotower would reinvest the purchased securities within Pepp and that its technicians were given a mandate to immediately study a new tool against revenue splitting in the eurozone.

Good. But not good. Spread is still high. Although the APP is still working until June 30th, obviously ring of death Italian banks and insurance companies with the treasury. Another 24 hours and usual Bloomberg Reveals the details: The new shield will work on the principle of Balances unchangedas a purchase plan Court touts It would fuel even more inflation that is already escalating. That is, the securities of the core countries will be sold to buy those in the peripheral regions. When translating, the ECB will sell bonds and buy BTP. And this graph

Yield difference between 10-year benchmark bonds and eurozone sovereign bonds
Source: Bloomberg

Shows what reaction paper German indiscretion, not denied by the ECB: a bloodbath, so much so that the Bund’s ten-year benchmark yield has exceeded During the day From 1.64% to 1.85%, then closed on Thursday at 172. In short, we are exchanging disguised debt as another contingency. blatant Funding from the back door Which, fig-sheet net of unchanged stocks, sets a clear precedent: The Bond becomes an implicit guarantee of BTPs. In translation, the very strong German debt is borne by the Italian solvency market.

And this is the other picture

Italexit Risk Agent Tracker Trend

Italexit Risk Agent Tracker Trend
Source: Bloomberg / Zerohedge

It shows fluidly how the market appreciated the reassurance – albeit informal – from Frankfurt. Not only did the spread close the week in the region of 200 basis points, but above all, Risk Tracking Agent Italexit Sharply turned to the negative side. The recipe is convincing. Even the Germans? This is the real thing BusilisHowever, it is set to reveal itself not only after Sintra but also after the summer. In short, net gas crunch, The difference should allow at least quiet holidays to MEF. This graph

Correlation between the European Central Bank's balance sheet and the German property price index

Correlation between the European Central Bank’s balance sheet and the German property price index
Source: Bloomberg

Flexibly shows what is the only real priority of the German bank at the moment: Avoid at all costs and under all circumstances another delay in raising the price. The European Central Bank’s announcement, first informal and then formal, of adjusting the first 25 basis points in July has actually stalled The dangerous tandem that saw the European Central Bank’s budget rise coupled with the German property price index. Which in May fell 0.3%, the maximum since April 2020 and all thanks to a tripling of mortgage rates since the beginning of the year.

In short, The housing bubble is losing some air. Controlled deflation. Whatever interests you at the moment is on the other side of Frankfurt Road, Bupa Road. Who is now eagerly awaiting the real estate data for June, which will have a positive impact not only on the confirmed increase in the cost of money but also on the end of purchases under the umbrella APP. It seems that the downturn will continue without explosions. And in an even harsher way. In short, they are all happy. Italy because it sees the return of the spread alarm in record time, Germany because it has achieved its most urgent goal e Christine Lagarde as she was able to experience the Warholians for 15 minutes of glory at Cintrawearing a cloak amazing woman from the eurozone. Masterpiece.

real knot? times. It is not about the implementation of the program, which in fact does not think of any particular technology and is immediately launched. In fact, the task was made even easier by preemptive market pricing that began unloading the Bund with a wheelbarrow. Rather than specifically accepting, More political than economic reputation, on the part of Germany, which has lost its place as a safe haven for the BundForced to return excellent to its historical average in respect of saving others’ debts. And not everyone else, Italy’s Mario Draghi. Wolfgang Schäuble may not get over the shock. and summer.

But net forced concessions, Berlin will clearly impose strict clauses on the ECB for recipient countries and clear and written guarantees in relation to them sacrifice. In short, Rome is safe but from now on it will depend almost entirely on the right of the European Central Bank and the Bundesbank to pull the plug on the anti-spread ventilator. And that is when the first delay in the chamber or an obstacle in the Council of Ministers about reform Ordered by EuropeAnd the can lead to run Putin’s strategyOr, selling bonds and the consequent purchase of suspended or halved BTPs. At this point, we’ll be back again. It has exploded and a new one has emerged. But in the downward spiral of a potential fall recession, in the middle of a gas crisis and with a government that may have lost parts of it in the meantime. We are safe now. But for how long? And on top of all this, at what cost?

Leave a Comment