Thursday, November 10, 2011

10/1/2011: Some simple Italian Auction maths

Italy's latest auction of 12mo t-bills came in at:

  • Allocation: €5bln 
  • Average yield 6.087% vs 3.57%  in last month's auction
  • bid to cover ratio 1.989  vs 1.88 last month
The auction proves that
  1. Italy is now insolvent (reminder - Italy is heading for 120% debt/GDP ratio with average real growth rate 1990-2010 of under 1% pa, implying that as ECB bound for inflation, Italy's annual expected growth over the next 20 years is unlikely to cover 1/2 of Italy's funding costs for its debt)
  2. Italy is now illiquid (see chart below for funding requirements forward, courtesy of the ZeroHedge)
  3. EFSF is now blown out of the water, with Italy's funding needs over 2012-2015 alone accounting for more than 1/2 of the entire enlarged EFSF pool of liquidity (good luck raising that, folks)
  4. Italy's banking system is now insolvent as well, with Intesa's exposure at €60.2bn, UniCredit exposure of €49.1bn, Banca Monte at €32.5bn
  5. Euro area top banks are now also insolvent with BNP Paribas exposure of €28bn, Dexia (aha, that one again) exposure of €15.8bn, Credit Agricole exposure of €10.8bn, Soc Gen exposure of €8.8bn, Deutsche Bank exposure of €7.7bn
  6. A 30% haircut on Italy, in addition to 75% haircut on Greece requiring a direct hit on banks capital in Europe of some €315bn (that's on top of EFSF exposure to shore up Italian sovereign alone)


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