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Who's next? Spain? Italy?
worldtraveller
Posts: 14,013 Forumite
There’s been a lot of talk over the past few hours about sovereign debt jitters in Europe spreading from Greece to Portugal.
Two things to note: First, while Portugal’s government bonds did take a serious beating yesterday, today it looks like financial markets are worried about nearly everyone in the euro area, including Greece.
As of about 9:30 a.m. in London, it costs about $417,000 annually to insure $10 million of Greek debt for five years compared with $397,400 yesterday, according to CMA DataVision. That’s uncomfortably close to last week’s record high of $422,500. Portugal’s debt-default insurance cost, meanwhile, is still half that amount, at about $210,000 today from $196,000 yesterday.
Second point: The real danger isn’t that bond market fears will spread to Portugal, which like Greece is only a fraction of the euro zone’s total economy. The problem is if contagion hits bigger players like Italy and Spain. Today’s market movements don’t bode well in that regard. The cost of insuring against a sovereign debt default in Spain has hit $164,500 from $152,000 yesterday, while Italy is also up $6,000 to $137,000.
Even Britain’s debt-default insurance cost has jumped to $96,400 from $90,000. And Britain, of course, isn’t even in the 16-nation euro currency zone. In any case, all this hand-wringing is taking a toll on the euro, which is trading at about $1.3845 against the dollar compared with $1.3893 yesterday, after hitting a seven-month low of $1.3831.
Wall Street Jornal - MarketBeat
One major buzzword last year was, of course, 'quantitative easing', now it's 'sovereign debt'!
Two things to note: First, while Portugal’s government bonds did take a serious beating yesterday, today it looks like financial markets are worried about nearly everyone in the euro area, including Greece.
As of about 9:30 a.m. in London, it costs about $417,000 annually to insure $10 million of Greek debt for five years compared with $397,400 yesterday, according to CMA DataVision. That’s uncomfortably close to last week’s record high of $422,500. Portugal’s debt-default insurance cost, meanwhile, is still half that amount, at about $210,000 today from $196,000 yesterday.
Second point: The real danger isn’t that bond market fears will spread to Portugal, which like Greece is only a fraction of the euro zone’s total economy. The problem is if contagion hits bigger players like Italy and Spain. Today’s market movements don’t bode well in that regard. The cost of insuring against a sovereign debt default in Spain has hit $164,500 from $152,000 yesterday, while Italy is also up $6,000 to $137,000.
Even Britain’s debt-default insurance cost has jumped to $96,400 from $90,000. And Britain, of course, isn’t even in the 16-nation euro currency zone. In any case, all this hand-wringing is taking a toll on the euro, which is trading at about $1.3845 against the dollar compared with $1.3893 yesterday, after hitting a seven-month low of $1.3831.
Wall Street Jornal - MarketBeat
One major buzzword last year was, of course, 'quantitative easing', now it's 'sovereign debt'!
There is a pleasure in the pathless woods, There is a rapture on the lonely shore, There is society, where none intrudes, By the deep sea, and music in its roar: I love not man the less, but Nature more...
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Comments
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I am shocked there are still institutions willing to insure Greek debt...Not Again0
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1984ReturnsForReal wrote: »I am shocked there are still institutions willing to insure Greek debt...
They will not default the ECB will bail them or the IMF.
The real issue is the political cost. Will it be riots, general strikes and a change in Govt. Yes is my view.0 -
1984ReturnsForReal wrote: »I am shocked there are still institutions willing to insure Greek debt...
However, as one commentator wrote today,
"Greece...is the fiscal Petri dish that reveals in gory detail what could happen in the UK if this Government – or the next – fails to maintain the confidence of investors."There is a pleasure in the pathless woods, There is a rapture on the lonely shore, There is society, where none intrudes, By the deep sea, and music in its roar: I love not man the less, but Nature more...0 -
1984ReturnsForReal wrote: »I am shocked there are still institutions willing to insure Greek debt...
It's a risk/reward gamble like any other investment. If they don't default, it's pure profit for the insurer.0 -
Adding further debt of course.They will not default the ECB will bail them or the IMF.The real issue is the political cost. Will it be riots, general strikes and a change in Govt. Yes is my view.
Certainly in Greece & Spain & Italy! Probably in the U.K. too!
There is a pleasure in the pathless woods, There is a rapture on the lonely shore, There is society, where none intrudes, By the deep sea, and music in its roar: I love not man the less, but Nature more...0 -
What's the betting Northern Rock, RBS and HBoS had their sticky fingers in the Tapas?0
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What's the betting Northern Rock, RBS and HBoS had their sticky fingers in the Tapas?
The FT has an article about the largest lenders to Greece Portugal and Spain.
To Greece it was France and Germany (French banks own a couple of Greek banks)
To Portugal it was Spain (by a long way) France, Germany.
To Spain - France and German.
France was exposed by 2 to 1 compared to Germany
UK was low.
Foreign banks owned 216billion of Greek debt. Greek GDP is about 270billion Euro. That is the scale of the problem.
All frm memory so may be some errors in the figures but not the gist.0 -
A whole load of Greco debt
Collapsing Irish house prices
Holiday homes being dumped in Spain
And POP goes the Euro :eek:
I wonder if the kids will be singing this in a few hundred years and not knowing
what it means
'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0 -
Yep, the dominoes are starting to wobble! Horrible day for anyone with a portfolio not stuffed full of US Dollars, Treasuries or Vodafone shares:FT - Sovereign debt fears rattle investors
1635 GMT:
Fears of sovereign debt contagion across the eurozone sent European markets sharply lower as negative sentiment spread to Wall Street with US markets also hit by worse than expected jobless data.
European and UK stock markets fell more than 2 per cent with Portuguese and Spanish stock markets leading the declines with falls of 5 per cent or more. Investors also sold sovereign debt in these periphary eurozone countries and sought the safety of the dollar and US Treasuries.
Reflecting those concerns, the western Europe Markit SovX index, which measures the cost of insuring against the risk of default, widened beyond 100 basis points for the first time amid heavy buying in the sovereign credit default swap market. CDS spreads on Portugal hit record highs, up 28bp to 222bp, while Greek credit default swaps rose 21bp to 412bp, heading closer to records of 421bp reached in January.
“The latest catalyst was [Wednesday’s] bond auction in Portugal, which was scaled back and which has reignited fears that the likes of Portugal and Greece will not be able to fund their deficits without a bail-out,” said Gavan Nolan, credit analyst at Markit.
Jean-Claude Trichet, president of the European Central Bank, sought to play down concerns over Greece, saying he was “confident that the Greek government will take all the decisions that will permit [it] to reach” the medium-term goal of cutting its budget deficit. The ECB left its main interest rate unchanged at 1 per cent at its meeting.
Mr Trichet’s comments helped Greek government debt, with 10-year bonds rallying, pushing yields 10bp lower at 6.6 per cent.
But contagion concerns started to spread to corporates, with CDS spreads on companies such as Portugal Telecom, Telef!nica and Hellenic Telecom rising significantly in strong trading volumes. CDS spreads on Portugal Telecom jumped 30bp in early trade to 150bp, their highest levels since April last year.
Portugal’s 10-year bonds jumped 6bp to yield 4.71 per cent. Ten-year Spanish sovereign yields were up 3bp at 4.13 per cent.
The euro fell below $1.377 against the dollar, hitting lows last seen in May 2009.
“The euro was initially buoyed yesterday [Wednesday] by the European Commission’s endorsement of the Greek debt plan,” said Michael Hewson of CMC Markets. “However, it slipped back after Portugal cut a planned treasury bill issue and Spain disclosed that its budget deficits for the next three years will be higher than forecast. It would appear the sovereign debt problem is turning into a contagion in the eurozone.”
The dollar benefited from its safe haven status and was up 0.6 per cent against a basket of trade-weghted currencies, its highest level since July last year. US Treasuries also rallied on a flight to safety, sending yields lower with 10-year US Treasury yields down 6bp to 3.64 per cent and with similar falls across the yield curve."The state is the great fiction by which everybody seeks to live at the expense of everybody else." -- Frederic Bastiat, 1848.0 -
worldtraveller wrote: »One major buzzword last year was, of course, 'quantitative easing', now it's 'sovereign debt'!
It's the new subprime mortgage!0
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