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SPDR S&P 500 ETF Message Board

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  • matthew_and_january matthew_and_january Nov 9, 2011 6:53 AM Flag

    what a complete joke...

    I agree, yesterday was insane. I posted something along the same lines a few minutes ago. I'll re-post it below...

    Just amazing how 10yr Italian bond yields hit an all time high of 6.8% yesterday, but the market rallied anyway, then it keeps widening to 7% this morning, and the market tanks -2.5% on Italian fears. There is no real difference between 6.8% and 7%, and Italy was done either way. Just gave everyone a great chance to sell yesterday, and I sold half of my equity exposure, too bad I didn't sell it all. And for those options players, the VIX even cooperated by dropping into the 20s so you could buy cheap puts. Fantastic.

    Well, if the market doesn't like 7% Italian yields, they aren't going back down meaningfully anytime soon, and are only likely to get worse. This all stems from the unintended consequences of 'the plan' agreed to a couple weeks ago, haircutting Greek debt by 50% with ISDA allowing it not to be counted as a CDS trigger event. Thinking they were avertinging disaster by pushing for a non-trigger, all they have effectively done is made all CDS on European sovereigns worthless, as there is no faith now that they would ever pay out. Thus, all the former holders of European sovereign debt that had hedged themselves with CDS are now effectively un-hedged, because the CDS won't pay out based on the Greek precedent. So they have to sell, and sell they have, as European sovereign yields, especially Italy, have risen almost every single day since they announced the plan, as they have now ostracized all their buyers. It's game over for Europe.

213.17-0.34(-0.16%)Oct 27 8:00 PMEDT