8/6/2019 Morning News Notes: 2011-07-11

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Monday, July 11, 2011my comments are in italics

Italy the FT talks about how hedge funds are placing large bets against the value of Italian

debt, directly shorting the bonds of the eurozones 3rdlargest economy. Funds have increased the size of

short positions in the last month. Investors are shorting Italian bonds outright rather than use CDS (many

hedge funds are calling into question the value of CDS after the current situation in Greece where it looks

like payouts wont be triggered). FTthe general thinking has been Spain before Italy but that is now

changing, perhaps in part because of the data below, which show Italy to be completely off the

regression. The reason Italy has not been punished for its debt/GDP levels is because most of their debt

is funded domestically, much like Japan. Thus, they have been able to fund their debt at lower rates via

their citizens. What if that changes and Italy has to roll debt to less forgiving global capital markets?

European officials continue to evolve their thinking on the Greek debt situation if a selective

default cant be avoided then make the most of it and push for a massive reduction in the countrys

indebtedness. Officials are now open to an outright Greek default as part of a broader effort to cut the

countrys overall debt levels. The French Plan for Greek banks could wind up getting abandoned in

favor of the German Plan (which entails a larger swap of existing Greek debt for new longer-maturity

paper). Officials would also provide funding for Greece to purchase some of its (deeply discounted) debtin the secondary market.FTthe market has been viewing a Greek default as inevitable.

Officials met at the White House Sunday night (the gathering lasted only 75 minutes) but failed to

reach an agreement on key elements of a plan, even at the smaller $2T level. The WSJ says the tone of

Suns meeting was tense and confrontational at times while the Washington Post says current talks are

deadlocked. Officials from both parties didnt make much progress towards reaching a deal.

WSJ/NYT/Politico/WaPo

Geithner warned that the financial markets could soon begin to react with concern, which could

drive up interest rates and make borrowing more expensive.WSJ

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

50.00% 70.00% 90.00% 110.00% 130.00% 150.00%

SpreadsoverGermanBunds

Debt/GDP

Spreads vs Debt/GDP

Greece

Portugal

Ireland

Spain

Italy

http://on.ft.com/pBvqGEhttp://on.ft.com/pBvqGEhttp://on.ft.com/pBvqGEhttp://www.ft.com/intl/cms/s/0/5ffeabf0-ab09-11e0-b4d8-00144feabdc0.htmlhttp://www.ft.com/intl/cms/s/0/5ffeabf0-ab09-11e0-b4d8-00144feabdc0.htmlhttp://www.ft.com/intl/cms/s/0/5ffeabf0-ab09-11e0-b4d8-00144feabdc0.htmlhttp://online.wsj.com/article/SB10001424052702303812104576437892165205166.html?mod=WSJ_hp_LEFTTopStorieshttp://www.nytimes.com/2011/07/11/us/politics/11boehner.html?_r=2&hphttp://www.nytimes.com/2011/07/11/us/politics/11boehner.html?_r=2&hphttp://www.politico.com/news/stories/0711/58662.htmlhttp://www.politico.com/news/stories/0711/58662.htmlhttp://www.politico.com/news/stories/0711/58662.htmlhttp://www.politico.com/news/stories/0711/58662.htmlhttp://www.politico.com/news/stories/0711/58662.htmlhttp://online.wsj.com/article/SB10001424052702303812104576437892165205166.html?mod=WSJ_hp_LEFTTopStorieshttp://online.wsj.com/article/SB10001424052702303812104576437892165205166.html?mod=WSJ_hp_LEFTTopStorieshttp://online.wsj.com/article/SB10001424052702303812104576437892165205166.html?mod=WSJ_hp_LEFTTopStorieshttp://online.wsj.com/article/SB10001424052702303812104576437892165205166.html?mod=WSJ_hp_LEFTTopStorieshttp://www.politico.com/news/stories/0711/58662.htmlhttp://www.politico.com/news/stories/0711/58662.htmlhttp://www.nytimes.com/2011/07/11/us/politics/11boehner.html?_r=2&hphttp://online.wsj.com/article/SB10001424052702303812104576437892165205166.html?mod=WSJ_hp_LEFTTopStorieshttp://www.ft.com/intl/cms/s/0/5ffeabf0-ab09-11e0-b4d8-00144feabdc0.htmlhttp://on.ft.com/pBvqGE