10Y Italian-German Bund Spread Spikes to 2.44, Spain-Bund Spread Testing High! (Chart, Link Fest)

10y Italian-German Bund Spread (Bloomberg)
Both the 10-year Italian-German bund spread and Italian 10-year government bond yield keep making new highs after breaking above resistance levels (read my previous post on 6/24/2011: 10 Year Italian-German Bund Yield Spread Makes New High; Watching Spain - Chart). The Italy-Germany 10Y Spread is at 2.44, up 31% in about a month (from 1.85), and the 10-year Italian government bond yield closed at 5.27, up 9.5% from 4.81. German bonds are considered a safe haven for investors.

On 6/19/2011, I tweeted that a breakout looked possible when looking at the chart and jokingly said the Italy-Bund Spread ETF was in play. There isn't an ETF available for the 10-year Italian-German Bund spread (there are now futures), but BUNT:ITLT, the 3x German Bund/3x Italian Bond ETN, increased 16% in about a month on very low volume (chart below). BUNL:ITLY is the ratio without leverage. I don't trade European Govvies, I am strictly looking at charts available on Bloomberg.com and StockCharts. The sovereign debt crises in Europe affects other markets, banks and currencies (EUR/USD, EUR/CHF etc.).  Here is the amount of Italian debt outstanding in Euros from the Bank of Italy. Total Debt/GDP as of 12/31/2010 was 119%. See trends at http://www.dt.tesoro.it (Dipartimento de Tesoro).

  • Outstanding Government Bonds as of 30/06/2011: € 1,582,700.50 million
  • 10y Italian Government Bond Yield (Bloomberg
  • Public Debt as of 31/12/2010: € 1,843,015 million

European government bonds and bund spreads (links) have been volatile because of rolling default and contagion risk. On July 2, Greece got a $17 billion lifeline from the ECB/EU/IMF that will last them a few months, and last week Portugal was downgraded to junk by Moody's and its bond yields, credit default swaps and bund spreads made new highs. The 10-year Irish-German Bund spread keeps making new highs and the 10-year Spanish-German Bund spread is testing the 6/24/2011 high at 2.84 (chart below). European markets are the most interesting to watch right now.

10Y Spanish-German Bond spread is testing resistance (courtesy Bloomberg.com)

BUNT:ITLT - PowerShares DB 3x German Bund/3x Italian Bonds (courtesy Stockcharts.com)

Interesting articles on Italy:

Could Italy Be the Next European Domino?: Simon Johnson (Bloomberg, July 4, 2011)

Italy’s debt woes coming at worst time (Washington Post / Toronto Star, July 10, 2011)

Spain and Italy risk being sucked in (Financial Times, July 8, 2011)

EURO GOVT-Italian/Bund yld spread at widest level in euro era (Reuters, July 8, 2011)

"Hamish McRae: The euro could survive Greece leaving, but not Spain and Italy (The Independent, July 10, 2011)

IFR-COMMENT: Eurozone crisis no longer contained (Reuters, July 8, 2011)

"UniCredit, Intesa Drop to Two-Year Low as Debt Contagion Threatens Italy" (Bloomberg, July 8, 2011)

"Fears Italian banks may fail stress tests: UniCredit shares temporarily suspended as concern about eurozone's financial health settles on Italy" (Guardian.co.uk, July 8, 2011)

Euro Drops Most in Almost Month on Concern European Debt Crisis Worsening (Bloomberg.com, July 8, 2011)

and remember this? -- "Italian Bank Trading Dominates (Goldman's Dark Pool) Sigma X For Second Day In A Row Following Rumors Of Tremonti Resignation" (Zero Hedge, June 28, 2011)

Hedge Funds Move Past Greece With Bets That Sovereign Debt Crisis Expands (Bloomberg, July 7, 2011)