Italy's Bond Rollover Problem Dramatically Worsens; Yield Curve Inverts; 3-Year and 5-Year Bonds Yield Exceed 10-Year Yield

With Italian government bond yields, it's a case of "another day, another record". Here are a few charts.

Italy 2-Year Government Bond Yield



Italy 3-Year Government Bond Yield



Italy 5-Year Government Bond Yield



Italy 10-Year Government Bond Yield




Curve Watchers Anonymous notes that 3-year and 5-year Italian bonds now yield more than 10-year bonds, albeit by a small amount.

This is a huge red flag for Italy.

Germany 2-Year Government Bond Yield



Germany 10-Year Government Bond Yield



Curve Watchers Anonymous also notes the explosion in the 2-year bond spread between Germany and Italy, now at a whopping 5.98 percentage points and rising rapidly, exacerbating Italy's bond rollover financing problem.

Comments from Copenhagen

Steen Jakobsen, chief economist from Saxo Bank pinged me with these comments earlier today:

Italy has 37 billion EUR of maturing debt this year alone, and 347 billion EUR next year. The average funding rate is 4.5% ish, versus the 10-year now trading at 6.77%.

Time is running out. However, we as market players tend to underestimate the political process ability to �buy time�.

If Italy makes a credible plan or short-term swaps Berlusconi for a technocrat government, they can buy some more time to put their house in order. So don�t expect this week to be the final chapter in neither Italy or Greece.

Don�t worry, there are plenty more chapters to come.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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