Stewart Cowley: whose clever little boy are you?

And it can happen. Just on the basis of history, it is doubtful that Italy and its European allies can keep on buying at the current rate of accumulation.

The post-July 2012 period was an unusually rapid period of buying for the ‘Others’ so that prop should be kicked from under the market going forwards.

A ponzi scheme

Also, domestically, the economic situation is continuing to deteriorate. Unemployment is over 11% but more to the point Non-Performing Loans for households and non-financial corporations are rising at a rapid rate (6.4% and 9.3% respectively in 2012). 

For individuals and companies who have been using Italian government bonds for cash management you understand why they might divert some of their funds from the issuance program and towards debt reduction.

At a national level Italy runs a primary surplus. In other words its real problem is the interest payments that it has to fund annually which is what creates its 4% of GDP deficit.

This is the massive Ponzi scheme that Italian national finances runs on – when you are borrowing to pay the interest on your debts you are in real trouble.

But in the face of citizens increasingly digging into savings in order to sustain their lifestyle, the likelihood is that this prop that supports the Italian bond market will be taken away. You don’t have to be too clever to work out what that would do to Italian bond yields going forwards.

And don’t forget we have not even mentioned politics yet.

Cowley manages the Citywire Selection Old Mutual Global Strategic Bond fund. In the three years to 21 January the fund has returned 23.7% versus a 14.3% rise in the benchmark.