Looks like the ECB's effort to stop the fire in Europe is actually working. Italian 10-year bond yields dropped significantly today after the ECB's bond-buying program, meaning there's a bit less fear of contagion. Some might claim that this is obvious-- if the ECB is buying bonds, of course the yield will go down. But the alternate scenario would be bondholders revolting at holding bonds they see as risky that don't yield enough to compensate them for the risk. Luckily, they aren't. And, on the fundamentals, I think they're right. Italy is running a primary budget surplus, so as long as the interest payments on their large debt burden stay manageable, they should be able to tread water and avoid contagion from the Greek travesty.
In other news, since S&P "downgraded" the US, yields on 10-year Treasuries have fallen by 38 basis points, and rates on 30-year Treasuries have fallen by 26 basis points. And real yields (which take into account inflation expectations are at 0 for 10-year Treasuries and about 1% for 30-year Treasuries. The real yields are actually NEGATIVE for 5- and 7-year bonds, meaning that you're essentially paying to lend the government money for that length of time (people still lend to the government at negative real rates because nominal rates are positive, so holding cash always has a negative real return over time unlses inflation is negative). The point to take from this is: so much for S&P's downgrade throwing the US's solvency into question.
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