Daily: ECB penalty rates for sovereign debt as conditionality

I am a bit pressed for time, so the like will be short today. The key issue is the ECB's bond buying. I wrote up the key variables in the weekly earlier but here are some general thoughts. The IMF says that Spain and Italy's bonds have traded 200bps wide of what fundaments would suggest. The IMF wrote that fundamentals call for 200bps to Bunds. But Spain and Italy averaged about 400bps in the first of half of 2012. They are trading even wider now with Italy at 439bps and Spain at 509bps. That's actually down from a July high of 536bps and 638bps respectively.
Influential ECB board member Joerg Asmussen has suggested this is completely due to redenomination or convertibility risk, meaning that the parabolic move is not default related but euro breakup related. His conclusion is that the EC...


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