When I looked at the landmine map for 2012 one date stood out: a huge 182-day bill auction in Italy for more than $11 billion dollars.
I figured that by the time we got to that auction Italy would have been so on the ropes that no one would even take 4-5-6% for that kind of money. I figured that people would boycott the auction and it would most surely wreck the first quarter for every fund out there in financial assets. I figured this because every smart person I knew told me that Italy was a goner and as Italy is the third-largest bond market on earth we were all goners.
Italy sold that paper this morning at the lowest rate in more than a year. They paid 1.119%. Mario Monti's plan, which is what every government in his position should be doing -- a mixture of spending cuts, tax increases and growth initiatives -- seems to be working.
Think about it. Four months ago Italian 10-year paper stood on the brink with the fabled 7% being breached. Every time the 10-year touched that mark we got hammered here. We lost 400 Dow points the first time it happened.
Now, rates for that paper are 200 basis points lower. I don't know if that paper should be trading any lower than that. I don't think I want a 4% piece of Italian paper. Still, the fact is that the Italian bond market is a ready and cheap source of cash for the Italian government and that is a simple declarative and true statement. It is a major reason why we are having the best quarter since 1998. It is a major reason simply because it doesn't matter anymore and if Italy doesn't matter anymore -- the most important conclusion of the conclusion of this bill auction -- the world is a much better place.
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