Trader Talk

Will China Rescue Italy?

An FT report that Italy is looking to China to buy their bonds lifted the markets off its lows today.

FT specifically noted that the head of one of the largest Chinese sovereign wealth funds visited the Italian finance minister last week, and Italian officials have also been in Beijing recently.

Skeptics would note the timing of this leak is quite a coincidence, considering that Italy is auctioning off 5-, 7- and 10-year dated debt tomorrow. Also, the lower house of the Italian parliament is supposed to vote on the austerity budget this week; the upper house approved the bill last week.

Cynics would note that even if it is true, it's not clear how much it will matter in the long run. Italy has approximately 1.9 trillion euros of debt; it is unclear what percentage of that the Chinese hold (FT says one Italian official said about 4 percent), but traders said it is highly unlikely that the Chinese are going to swoop down and buy a huge quantity of that debt.

Let's say they double down on their investment and buy another 4 percent of that debt...that is about 76 billion euros ($103 billion). Does anyone think the Chinese are going to make a $100 billion investment in Italy right now? That would be impressive, and even that is only 4 percent.


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