Italy rejected the budget today. I can’t imagine that it is because the opposition wanted more austerity. That must make the Slovakians even more eager to provide the EFSF with money to buy Italian bonds.
The IMF has declared that they went to Greece (because they had purchased non-refundable tickets) but are going to give our money to Greece even though none of the alleged criteria were met. How long are countries going to let IMF control their money so whimsically?
Since EFSF will likely be approved, I wanted to see what the Eurozone was going to do with all that “cheap” money. As you can see clearly from the graph, French bond spreads are widening relative to Germany, and EFSF spreads are widening slightly faster than that. The EFSF trades as a blended yield of the best guarantors. That makes sense and is what we have said all along. As the EFSF issues more debt, I would expect it to trade even wider than the weighted average of the guarantors, because collecting on a guarantee is not always that easy and the weaker countries are getting weaker and likely to create real losses in the underlying portfolio.