I had a wonderful time in Genova. My visit wasn't very long, because I had to come back to teach.
On the trip I spoke to quite a few young Italians (young here is probably, err, 35 and below), who all expressed pessimism about the future of the country and the economy. On the other hand, at the fancy dinners with Genovese families, I met a number of wealthy business types who reassured me that Italy would be fine and would have no trouble servicing its debt.
On Friday equity markets rallied in relief after the announcement of the latest plan to deal with the Euro debt crisis. However, ominously, bond investors demanded higher rates for Italian 10 year debt.
WSJ: ... Those sorts of concerns played out in Italy's €7.935 billion debt sale on Friday. On each of the four bond issues it sold, Italy was forced to pay higher yields than in the recent past. Most significantly, 10-year debt—a market benchmark—was sold at a yield 6.06%, up from 5.86% only a month ago.
"With a 120% debt-to-GDP ratio and 10-year Italian bonds yielding roughly 6%, they can't do that forever or the borrowing costs will get to an unsustainable level," said Eric Stein, portfolio manager at the Eaton Vance Global Macro Absolute Return Fund. "As your rates go up, it means you're paying more and more to service your debt, and your whole debt dynamics become harder and harder and harder.
As often noted by professionals, equity markets are driven by emotion, whereas bond markets are driven by quantitative analysis.
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