Technocrats come and technocrats go but the Eurowreck skids on. The false belief that Mario Monti was responsible for the improvement in Italian bond yields has led to worries about his impending departure. The 200-basis point drop in yields credited to him by august publications and pundits is reflective of the cognitive bias which makes us endow our leaders with superhuman qualities (which is why leaders win or lose elections based on events which are clearly beyond their control).
The good news is that his absence or presence doesn’t really make much of a difference. The great rally at the start of the year was based on hopium and took place across asset classes. It was not confined to Italian bonds. As the hopium wore off, yields started pushing wider despite Monti. It took Mario Draghi’s OMT threat to start the next rally (Graph below).
Graph: Italian 10-Year Yields
Source: WSJ, Market Data Center