The next three months are crucial to the survival of the EU. If they are to make it out alive and into the future, the require support and cooperation of the markets.
Remember that the ECB and EFSF, along with the potential cooperation of the IMF, have hundreds of billions of euros on the sidelines. That’s not enough money to fix the crisis. It is potentially enough money to spark a rally in euro bonds just in time to absorb their auctions.
That’s what I would gather they have been doing throughout the past three days.
It started with CDS contracts being sold in size a few nights ago (the Fly posted the numbers in the news section). Then it spread to euro bonds the next day.
Today, Italy had a twelve month auction at yields near half of what they were going for at the time.
Who buys bonds like that, other than a government body? Why purchase that many one year bonds down to that yield level, when any investor could get them for the higher yield on secondary markets?
Now the Europeans are entering the end game, buying their own debt in size, determined to try and bring back the private money to the table with visions of huge payoffs. Will they succeed? Or is their bluff even now being called by Soros’ type investors shorting their debt as fast as they can get their trades cleared?
I guess the answer is: we’ll see, won’t we.
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