Italian Bond Margin Hike Hits Italy, Euro & the Rest

The margin hike in Italian bonds from London-based LCH.Clearnet sent Italian yields to a new post-Eurozone high of 7.35%, EURUSD drops 200 pips to 1.3650s, Greece set to announce new government later today, China Oct CPI slips to 5.5% y/y, from 6.1%, lowest in 4 months.

Less than 24 hours after PM Berlusconis announcement to throw the towel and a short-lived Tuesday rally in Wall Street and Wednesday Asia, Europe opened in the red, driving bond yields higher, led by a 60-bp jump in Italian 10 year yields reaching 7.38%.

Exacerbating the route on global markets was the announcement from London-based clearing house LCH.Clearnet to raise the amount of margin on Italian government bonds that traders must post to insure trades against losses. This comes at a bad time when the ECB is feverishly buying Italian bonds to stem their yields. Similar moves were carried out last year when margins were raised on Irish and Portuguese bonds.

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MNI reminded that Italy's A rating from S&P and A2 from Moody's were both in line, while Fitch is lagging by 1 notch at A+. The last Italian downgrade from Fitch was in Oct 7. This could mean that Fitch may be next to downgrade.

On the data front, UK Sep Trade Deficit rose to GBP 9.8 bn from Augusts GBP 8.6 bn Aug, vs GBP 8.0 bln expected.

US equity futures are deeply in the red, with Dow-30 futures down 218 pts and S&P500 futured down 29 pts