The huge black swan event - Greek bonds, Italian bonds & the ECB

6 Sep 2011 CNBC
Nick Beecroft is Senior Strategist at Saxo Bank.

Background: German Foreign Minister -- Euro only stable with budget discipline.

[There's quite a bit of fear out there, why would I want to buy Greek bonds?]

There are some domestic institutions who have had their arms twisted. But also the investible wealth of the globe is enormous, $100 trillion roughly. And there will be a few billion here and there that are in very high risk funds that are willing to take that risk-reward thing (with yields).

[US 10 year and the German Bund....how much lower can we go? We are below 2 per cent...]

Maybe we will turn Japanese. There are a number of black swan events that will take us below 1.5 per cent.

[Will the ECB take their hands away from Italy?]

Maybe. I suspect they have to keep buying because the political situation finding a way to fiscal union is going to take weeks or months. The interesting thing is going to be their tone of language of rates, probably more dovish. Probably not an embarrassing cut, but maybe unlimited liquidity at a fixed rate forcing down market rates.

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