Italy crawls a teeny, tiny bit back from the brink

11/10/2011 11:23 am EST


Jim Jubak

Founder and Editor,

Italy has retreated from panic but the crisis remains.

The yield on the 10-year government bond stood at 6.92% as of 11 a.m. in New York. That’s a huge retreat from the 7.25% yield at the close yesterday and pushes the yield just below the 7% level that is widely seen as the limit for a sustainable interest rate.

The yield fell, and bond prices rose, as Italian politicians added a big dose of urgency to their effort to push an austerity package through Parliament. Italy’s Senate and Chamber of Deputies could finish voting on the bill as early as Friday—a big improvement on the original schedule that saw almost two weeks for voting. Quick passage of the austerity package would lead to the promised resignation of current Prime Minister Silvia Berlusconi.

Just as important the European Central Bank resumed buying Italian government debt in the financial markets. The bank keeps saying its buying is temporary—which doesn’t generate gobs of confidence in the financial markets—but even this show of support is important after yesterday’s rout.

The Italian government’s sale of $6.8 billion in short-term debt was a relative success this morning. At the auction, yields on the one-year bills were an average of 6.087%--quite good considering that one-year yields had spiked above 8% yesterday. That was a big jump, though from the 3.57% yield on one-year debt auctioned in October. Demand was a decent 1.99 times the amount on offer, up from 1.88 times in October.

But just as a reminder that the euro debt crisis isn’t over—in case you need one—the European Commission cut its forecast for EuroZone growth to 0.5% in 2012 from 1.8% in its last projection. For 2013 the forecast is for economic growth of 1.3%.


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