The Yield Of Treasury Bonds Is Approaching The &Nbsp Of Life And Death Line; Italy Is Stepping Into The Gate Of Hell.

With Italy's 10 year treasury bond yield rising to the highest 6.68% in the euro era, concerns about whether the euro zone's third largest economy can sustain itself has intensified.

Such a high cost of financing pushed Italy to 7% Greece, Ireland and grapes.
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Societe Generale Bank 13.22+0.070.53% tooth was forced to seek help in the "life and death line". In the face of increasingly difficult financing from the market, Italy seems to have had a foot in the "gate of hell".

Italy's reputation in the bond market has deteriorated further, forcing the European Central Bank to intervene again. But analysts are not optimistic that the ECB will take further measures to help the periphery of the eurozone.

　　 Approaching 7% of life and death

Less than two weeks after the EU leaders announced the package deal to resolve the debt crisis in October 26th, the yield on Italy's 10 - year treasury bonds is approaching 7%, which is of vital importance to the market.

7%, the reason why it became a landmark yield was that Greece, Ireland and Portugal were seeking external financial assistance shortly after their yields reached that level.

Although it can not be said that only 7% of the yield of treasury bonds means that a country will be forced to seek help, this level has become the "psychological line of defense" for market investors. The recent sell-off of Italy's treasury bonds has forced the market to worry that the country will become the fourth "Domino" to fall in the European debt crisis.

Even without this psychological line of defense, from a realistic point of view, Italy can not support such a high yield level for too long.

"I don't know if the upper limit is 7% or 6.9% or 7.25%, but I do know that Italy can't hold it for too long under such high yields." Stein, head of London long street research company, said.

High yields may force traders to offer more guarantees when they sell Italy bonds, which may reduce the attractiveness of Italy's debt to banks. Banks have always been one of the biggest buyers of European government bonds.

This is the vicious circle that Greece, Ireland and Portugal have also faced before. The rise in bond yields leads to more selling and further deterrent buyers.

In fact, higher interest rates will further exacerbate the vicious circle of selling.

According to the stipulation made by the LCH.Clearnet Group Ltd. of the main repo agreement clearing house, if the yield of a country's treasury bond yields is five higher than that of a European sovereign bond with a basket rating of AAA for 4.5% consecutive days, then the amount of the Treasury bond as collateral should be increased in repo transactions. If demand for collateral is raised, the attractiveness of Italy's debt to investors will be reduced.

Italy's national debt is at the edge of this higher risk category. The surge in yields on Italy's bonds on Monday expanded the spreads between 10 - year Italy bonds and 10 - year German bonds to 4.75 percentage points, setting the highest record since the euro zone was founded.

　　 New debts are hard to borrow.

Meanwhile, the rise in bond interest rates is also because investors are worried about whether Italy's prime minister Berlusconi can advance a comprehensive plan to promote economic reform.

As the seventh largest economy in the world, Italy has debts of up to 1 trillion and 900 billion euros, even larger than Spain, Portugal and Ireland. Italy is also a European country with second of the public debt to GDP ratio (GDP): the current debt ratio of GDP is as high as 119%, which is only 143% of that in Greece.

The Berlusconi Administration approved a total reduction of 45 billion 500 million euros in August, but Berlusconi surrendered to domestic pressure last week, saying it would cut the size of the 45 billion 500 million euro austerity plan, which led to a further surge in bond yields.

The high interest rate makes it more difficult to issue new debt. According to the report issued by Societe Generale November 8th, Italy has a total of 210 billion euros in debt issuance, of which 35 billion euros will be issued within the rest of the year.

Eric Green, an economist at TD securities company, believes that Italy will last for a while after the interest rate reaches 7%, but it will not be long. Ultimately, high interest rates will cause economic growth to deteriorate and more deficits will emerge after the economic contraction.

As the third largest economy in the euro area, if Italy is forced to seek financial assistance, it will have an unprecedented impact on the global market. However, most economists do not expect Italy to apply for relief. Although the total debt of Italy is large, there is actually a basic budget surplus in the country. This means that Italy also has the money to pay the cost of debt.

German Finance Minister Robert E. Bush said on Monday that the situation in Italy could not compare with Greece, but the country must regain market confidence and avoid further deterioration of the debt situation.

The government of Italy is facing a major test. On Tuesday, the parliament will vote on whether to approve the 2010 budget report.

"It looks like this is the turn of Italy, and bond investors are beginning to lose patience." In a November 8th Research Report, Colin Bennett, director of bank derivatives strategy in Santander, Spain, said: "the Italy government seems to lack enough support for the first round of austerity measures proposed by Berlusconi."

　　 The European Central Bank continues to buy bonds still "a drop in the bucket".

Analysts pointed out that without a specific plan to support Italy, it would be hard to reverse the sale of Italy's treasury bonds.

There are still some investors who believe that high interest rates may force the European Central Bank and other European countries to take stronger intervention measures.

According to data released by the European Central Bank on Monday, the bank has spent 9 billion 520 million euros last week to buy eurozone bonds. This is the first week since Mario became president of the European Central Bank, the largest since mid September, more than two times higher than the previous week.

The fact that the yield of Italy's treasury bonds soared has proved that the European Central Bank's massive debt purchase is still "a drop in the bucket." So some economists expect the ECB to take more radical measures.

But many analysts are not optimistic about further action by the European Central Bank.

The European Central Bank Council member has warned that if Italy's austerity measures fail to meet schedule, the ECB will be able to stop buying its national debt at any time.

"In the battle against crisis, the most powerful weapon that the European central bank currently possesses is the SMP." Nomura said in its November 8th global economic report: "but Mr. Delagi said that the responsibility of the European Central Bank is not the ultimate lender of the euro zone government." Nomura said frankly that the agency's hopes of Delagi becoming "super Marie" and announcing a substantive solution to the European sovereign crisis have been shattered.