'That Can't Be Right'
We find it disconcerting that the security that should benefit the most from the European plan has not appreciated along with the rest of the markets.
Every market in the world was on a tear last Thursday after European policymakers finally released their framework to alleviate the sovereign debt crisis. After a crazy day of opining on the flood of new issues hitting the corporate bond market, getting reports from traders on the extent of credit spread tightening, and talking to clients who were desperate to put cash to work, I decided to check the trading levels of sovereign bonds.
"That can't be right" was my initial reaction upon seeing that Italian bonds were largely unchanged, only a few basis points tighter. Considering that every other asset market in the world was off and running, I thought that Italian bonds should have rallied strongly as well. The European plan contains a framework to provide a backstop for sovereign debt borrowing if a country is locked out of the public debt markets. Italian bonds, whose yield has risen more than 100 basis points since the beginning of July, should seemingly benefit the most from this plan.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.