By: Mark Hanna
Posted on: December 20, 2011 at 9:45 pm
Ahhhh…acronyms. The latest in the 4 year litany of acronyms is LTRO. And you better know what it means before tomorrow: Long Term Refinance Operation.
Remember how the market sold off hard a few weeks ago as Mr. Draghi of the ECB poo-poo’d (sp? lol) the speculator’s favorite object: quantitative easing (QE)? Well he did announce a plethora of secondary supports. The one catching people’s attention today is LTRO. Why? Spanish yields on short term debt plunged this morning.
On Tuesday, the Spanish Treasury sold 3.7 billion euros of 3-month paper for 1.735 percent, after an average yield of 5.11 percent in November, at a bid-to-cover ratio of 2.9, up from 2.8.
The 6-month bill sold for an average yield of 2.435 percent, down from 5.227 percent, with 1.92 billion euros sold and demand outstripping supply by a factor of 4.1, after 4.9 a month earlier.
Those are huge drops. I didn’t take much heed to it, but the reasoning behind why this might have happened could be another in a line of epic ‘kick the can moments’.
In ‘simple language’ that even I can understand it appears the 3 year funding facility the ECB announced a week and a half ago, could be the means for a new carry trade. Essentially borrow,,,,,,,,,,,,,,,,,,,,,
http://marketmontage.com/2011/12/20/ltro-a-new-acronym-to-learn-and-important-to-watch-tomorrow-as-some-call-it-the-reason-for-todays-rally/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+marketmontage%2Fxyz+%28Market+Montage%29
Do you see the brilliance here? While it solves nothing other than shuffling debt around… it allows the ECB (which is currently not allowed to buy debt directly from governments) to be a middle man – they offer the money, the banks take it, and the banks send the junky debt back to the ECB as collateral. So in the end the Club Med debt finds its way back to the ECB’s balance sheet – just using a middle man. This has Geithner/Bernanke fingerprints all over it.
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