Lower Bond Yields Create Catch-22 for Italy and Europe

August 29, 2012 7:52 AM EDT
Italian 10-year treasury debt is trading at 3 month lows, and according to reports this could undermine Prime Minister Mario Monti's efforts to gain support for collective action by other EU countries, such as Germany.

Italy sold six-month bills today, and the cost was the cheapest it has been in months, thanks to expectations of bond buying. The low yields are creating a catch-22, since it takes pressure to act off countries like Germany.

ECB president Mario Draghi is putting the finishing touches on plans for bond buying in Europe, a plan meant to drive down rates in crisis areas. He is expected to announce the plan on Sept. 6th. Bundesbank President Jens Weidmann told German newspaper, Der Spiegel, he was opposed to ECB bond buying, saying it "can become addictive like a drug." The lower yields in Italy and the easing of the crisis could cause other official to flip-flop, undermining efforts by Draghi and Italy's Prime Minister Monti.

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