Tensions on government bonds flare up again at the least opportune moment, the one in which businesses and households are anxiously waiting for the credit market to unblock, a market that is still asphyxiated and not very responsive to the injections of liquidity from Frankfurt. The two refinancing operations orchestrated by the European Central Bank have replenished the European banking system and Italian banks in particular with liquidity: a good 254 billion euros between December 2011 and February 2012.
In the new year alone, to give an idea, about a third of the liquidity needs of Italian credit institutions went through the three-year operation on favorable terms concocted by Mario Draghi. A rather significant amount of money, considering that at the halfway point of the new year, country risk began its downward trend, with a spread that on February 29, the date of the second LTRO auction, was around 350 basis points.
In recent days, that level was first reached and then exceeded: before the Easter closing, the yield differential with the German Bunds stood at 368 for the Italian BTPs and 398 points in the case of the Spanish Bonos. A rather subtle difference, which probably does not do justice to the efforts made by our Government in recent months.
The new increase in yields immediately had repercussions on bank stocks, which fell sharply due to exposure to government bonds. The trend observed raises fears, not only because the rising spreads define what many observers describe as a "return to winter", but also because declining Btp prices automatically translate into a lower propensity of banks to finance households and businesses.
A few days ago the Bank of Italy, in its bulletin on credit and banks, announced that the growth rate of loans to the private sector fell to 1,3% in February from the 1,7% recorded in January , in the face of an increasing demand for credit from businesses. The banks' low propensity for risk therefore offers a foothold to the detractors of Frankfurt's monetary policy, but we must remember the importance that the ECB's easing operations have had in allowing many institutions to present themselves at government bond auctions with full pockets, carrying out a convenient carry trade both for the balance sheets of the institutions themselves and for the Treasury coffers.
Both Mario Draghi and the Governor of Bank of Italy, Ignazio Visco, then recalled that the impact of Frankfurt's monetary policy will have a delayed effect on economic growth. Meanwhile, the rates on new loans to businesses recorded a drop, from 4,06% to 3,80%, while loans to households (mortgages and consumption) increased slightly.
Furthermore, it is enough to look at the weight of the two LTROs to realize that, perhaps, there would be a need for a stronger stimulus: in the United States, Ben Bernanke's Federal Reserve has launched two waves of "Quantitative Easing" (in addition to the " Twist"), for a total of 2600 billion dollars, exactly double the Draghi operation (1019 billion euros), while the Bank of England stopped at 325 billion pounds, a smaller amount in absolute terms but more high when measured as a proportion of GDP.
In both the United States and Great Britain, monetary policy took several months to produce its first effects, but there is also a substantial difference: in those cases we did not witness a marked phenomenon of carry trade as instead happened in the refinancing of the BCE. This means that, in reality, a significant portion of the credit borrowed from Frankfurt is today "stranded" in government bonds that are once again losing value, reducing the liquidity immediately available to the private sector.
In the last press conference, Mario Draghi remarked that the long-term refinancing operations have significantly reduced systemic risks, suggesting that an imminent recourse to new quantitative easing is not foreseen. But the tensions that are building up again on government bonds could push the Governor to reconsider: the credit crunch nightmare is not over yet.
