The yields went up despite large purchases of Italian 10-year bonds by the European Central Bank – Europe’s equivalent of the U.S. Federal Reserve.
7% bond yields have historically marked the need for a bailout. Since Italy is probably too big to rescue, the alternative is another write-down of the banks’ and other investors’ holdings, this time in Italian sovereign debt.
It is likely that many banks are not prepared to withstand another haircut, following the 50% loss in Greece. We may see more MF Global’s.
Markets are down everywhere.