Italian 10-yr bond yields got to 7.5% whilst the 10-yr German/Italian bond spread widened to 550bps at one stage overnight before the ECB stepped in to stop the rot. We appear to have hit the point of no return for the “too big to fail/too big to save” Italian debt market. Debt restructuring appears the only way forward and given Italy is the 3rd biggest bond market on this planet…it will be ugly. Little wonder banks were trashed overnight.
Asia is unlikely to buck the overnight trend with the little Aussie battler firmly in the spotlight today. There are many economists who still think that rates will stay high in Australia. The market thinks otherwise with a 38bps Dec cut built into the futures curve. Today’s job data could be the defining factor. Anecdotal evidence says the non mining job sector has fallen into a hole. A poor number today (plus Europe’s woes) will make a 50bps Dec rate cut look like a done deal. Other releases include China’s trade data and an expected 25bps rate cut in Indonesia.
