Greece’s credit rating was cut 3 steps to junk status by Standard and Poor’s (S&P), the first time a Euro-Zone member has lost its investment grade since the currency’s 1999 debut. The Euro weakened and stock markets throughout the region tumbled.
Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt. The move, which puts Greek debt on par with bonds issued by Azerbaijan and Egypt, came minutes after the rating agency reduced Portugal by two steps to A- from A+.
Yesterday, the spread on Greek 10-year bonds over German counterparts widened to 6.75%, the highest since at least 1998, as investors increased bets that Greece will restructure its debt. The Portuguese spread jumped 0.59% to 2.77% and the Spanish spread rose to 1.13%.
The spread between Portugese and benchmark German 10-year bonds rose about 0.5% Tuesday to reach its highest point since the creation of the Euro. The higher spread demonstrates less confidence in Portugal, whose bonds had an interest rate of 5.86% higher than German bonds on Tuesday.
Germany, where the bail-out is unpopular with voters, has been slow in authorizing the release of funds. Its delay has furthered market panic and driven Greek 2-year bond yields to as high as 21%.
Greek 5-year yields hit 10.6%, higher than many emerging market economies, including Ecuador at 10.5% and Ukraine at 7.1%.
The carnage continued into this morning's early trading. The yield on 10-year Greek bonds surged to 11.24% early Wednesday from 9.68% on Tuesday. The yield is the highest for the 10-year since the introduction of the Euro in 2002. The 2-year bonds were trading with yields approaching 20%.
Today's jump in the yield on the Greek bond has led to an enormous spread of 8.22% compared with German bond yields. The yield on the German 10-year bond, considered the European benchmark, slipped to 3.02% early Wednesday, suggesting a flight to safety.
Greece needs to raise AT LEAST 9 billion Euros by May 19, but, given the current market yields, will have no chance of attracting institutional investors.
The marketplace has now spoken. Greece will need a major restructuring and existing bondholders will receive a haircut of at least 50% and possibly larger. The bail-out package, just activated, will be insufficient to cure the disease. While Germany continues to say the right things, such as indicating that Greece must not be allowed to fail, it has yet to act. Given the growing unpopularity in Germany of bailing out Greece, any aid package remains to be seen.
The only question now is how far the contagion will spread. Will Portugal be next to fall in the abyss? How many more countries will be taken down? No need to worry. Marko's Take is on the job.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new video blog on the Legality of the Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg). Our newest video, entitled "Social In-Security: The Problem" will be posted this weekend.
Showing posts with label Greek Bond Yields. Show all posts
Showing posts with label Greek Bond Yields. Show all posts
Wednesday, April 28, 2010
Monday, April 26, 2010
Greece: Going, Going... Gone
In early trading today, Greek bond yields exploded. Two-year Greek bonds surpassed the 14% yield level - a 4% jump in one day. The 10-year bond approached 10%.
Greece has activated a $60 billion bail-out from the International Monetary Fund at rates of 5% and below. The jump in Greece debt yields suggests a market belief that the bail-out, even if implemented, will be insufficient to stem the crisis.
In addition, the yield curve is now "inverted" (short-term yields exceeding long-term yields) indicating an evaporation of liquidity, which will surely translate into more severe economic hardship
Comments from Germany’s foreign minister Guido Westerwelle on Monday saying the German government has not yet committed to providing financial aid to Greece, also didn't help.
When asked about Germany's intentions toward providing assistance to Greece, Chancellor Angela Merkel has continually vascillated, a trait she is now becoming famous for.
Domestically, a German assistance plan for Greece is highly unpopular. The majority of the Germans believe they are rewarding Greece for cheating itself into the Euro, forging its balance sheets and then spending a decade living beyond their means while the German workers had to endure a painful period of restructuring and wage freezes.
The German Chancellor also emphasized that the decision to grant aid to prevent a Greek insolvency would be made only after Greece committed to a rigid deficit-reduction plan for years to come. "These discussions are ongoing," she said. "Greece has to accept harsh measures for several years."
Italian Foreign Minister Franco Frattini expressed concern about Germany's "intransigence" over Greece, saying a quick rescue operation is needed to support the Euro's stability.
Opposition parties blame electoral politics for Berlin's lack of haste to help Greece. Ms. Merkel's CDU party faces a tight regional election in the state of North Rhine-Westphalia on May 9. With German aid for Greece deeply unpopular in Germany, early commitment to bail-out the debt-burdened Mediterranean country could change the minds of some voters and could cost Ms. Merkel her majority in the upper house of Parliament.
Greece has said it wants aid from the joint EU-IMF loan mechanism to be made available within days of its formal request, which Athens made Friday. Spokespersons for the EU and IMF indicated that the response could be "positive or negative". The trading in Greek debt indicates an expectation of a thumbs down.
Marko's Take
Please visit our new YouTube channel at (http://www.youtube.com/markostaketv). Our latest video on the Legality Of The Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
If you're interested in 3D content delivered to your mobile phone, please visit our website at (http://www.e3dlabs.com/).
On the contagion side, the cost of insuring Portuguese government debt against default jumped to a record high of 288 basis points on Monday versus 278.8 basis points on Friday, according to Reuters.
Greece has activated a $60 billion bail-out from the International Monetary Fund at rates of 5% and below. The jump in Greece debt yields suggests a market belief that the bail-out, even if implemented, will be insufficient to stem the crisis.
In addition, the yield curve is now "inverted" (short-term yields exceeding long-term yields) indicating an evaporation of liquidity, which will surely translate into more severe economic hardship
Comments from Germany’s foreign minister Guido Westerwelle on Monday saying the German government has not yet committed to providing financial aid to Greece, also didn't help.
When asked about Germany's intentions toward providing assistance to Greece, Chancellor Angela Merkel has continually vascillated, a trait she is now becoming famous for.
Domestically, a German assistance plan for Greece is highly unpopular. The majority of the Germans believe they are rewarding Greece for cheating itself into the Euro, forging its balance sheets and then spending a decade living beyond their means while the German workers had to endure a painful period of restructuring and wage freezes.
The German Chancellor also emphasized that the decision to grant aid to prevent a Greek insolvency would be made only after Greece committed to a rigid deficit-reduction plan for years to come. "These discussions are ongoing," she said. "Greece has to accept harsh measures for several years."
Italian Foreign Minister Franco Frattini expressed concern about Germany's "intransigence" over Greece, saying a quick rescue operation is needed to support the Euro's stability.
Opposition parties blame electoral politics for Berlin's lack of haste to help Greece. Ms. Merkel's CDU party faces a tight regional election in the state of North Rhine-Westphalia on May 9. With German aid for Greece deeply unpopular in Germany, early commitment to bail-out the debt-burdened Mediterranean country could change the minds of some voters and could cost Ms. Merkel her majority in the upper house of Parliament.
Greece has said it wants aid from the joint EU-IMF loan mechanism to be made available within days of its formal request, which Athens made Friday. Spokespersons for the EU and IMF indicated that the response could be "positive or negative". The trading in Greek debt indicates an expectation of a thumbs down.
Marko's Take
Please visit our new YouTube channel at (http://www.youtube.com/markostaketv). Our latest video on the Legality Of The Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
If you're interested in 3D content delivered to your mobile phone, please visit our website at (http://www.e3dlabs.com/).
On the contagion side, the cost of insuring Portuguese government debt against default jumped to a record high of 288 basis points on Monday versus 278.8 basis points on Friday, according to Reuters.
Friday, April 16, 2010
Greek Bond Sale In Doubt As Problems Re-Surface
Greece had planned a $10 billion bond sale in the U.S., but, thus far, investment demand is poor. Giant bond manager Pimco has already announced their lack of interest and doubts that the issue will be successful. Morgan Stanley will lead the sales effort which is scheduled to begin April 20, with a national road show.
Athens has reduced its expecations and now hopes to raise between $1 billion and $4 billion, an amount not sufficient to plug it's upcoming May budget deficit. While April's shortfall is now satisfied, Greece needs to raise $12 billion for next month's requirements.
Greek debt spreads have resumed their widening versus German Bunds, following recent conflicting comments from Euro-Zone members, reports of potential delays and legislative requirements needed to trigger the 30 billion Euros worth of loans offered by European Monetary Union (EMU) governments.
Ten-year spreads earlier Thursday hit a 5-day high of 4.27% compared to the benchmark 10-year German Bund.
That is a mere 16 basis points below the 11-year high hit on Thursday April 8, which was just before the EMU finance ministers agreed to a 3-year loan plan for Greece.
Short-dated Greek bond spreads fell on Thursday after the news that the country would start discussions on the loan package. The yield on 2-year bonds fell to 6.34% from 6.66% on Wednesday. They hit a high of 7.1% last week.
Although the IMF has been involved in co-financed rescue packages before, as in Latvia and Hungary, it was clear that the fund took the lead role in setting conditions and disbursing tranches of money. The IMF would be expected to make available another €10-15 billion as a stand-by loan on top of the €30 billon available from Euro-Zone member-states.
Analysts said uncertainty over the agreement remained high, with reports in the German press suggesting that it might have to be increased to €90 billon.
It appears that the crux of the Greek budget deficit is runaway corruption.
A study to be published in coming weeks by the Washington-based Brookings Institution, finds that bribery and patronage are major contributors to the country's ballooning debt, depriving the Greek state each year of the equivalent of at least 8% of its gross domestic product, or more than €20 billion (about $27 billion).
Greece's budget deficit averaged around 6.5% of GDP over the past five years, including a 13% shortfall last year. If Greece's public sector were as clean and transparent as Sweden's, or the Netherlands', the country might have posted budget surpluses over the past decade, the study suggests.
Greece places last in the 16-nation Euro-Zone in a ranking by World Bank researchers of how well countries control corruption and last in the 27-nation European Union, tied with Bulgaria and Romania.
The Greek financial crisis continues to take center stage in the global financial turmoil. Despite intermittent reports that solutions have been reached, it's clear that a long-term solution will be far more problematic. Until the situation is truly stabilized, Greece's sovereign debt will be at risk.
Marko's Take
Please check out our new YouTube video on the Legality Of The Personal Income Tax. The video can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
Athens has reduced its expecations and now hopes to raise between $1 billion and $4 billion, an amount not sufficient to plug it's upcoming May budget deficit. While April's shortfall is now satisfied, Greece needs to raise $12 billion for next month's requirements.
Greek debt spreads have resumed their widening versus German Bunds, following recent conflicting comments from Euro-Zone members, reports of potential delays and legislative requirements needed to trigger the 30 billion Euros worth of loans offered by European Monetary Union (EMU) governments.
Ten-year spreads earlier Thursday hit a 5-day high of 4.27% compared to the benchmark 10-year German Bund.
That is a mere 16 basis points below the 11-year high hit on Thursday April 8, which was just before the EMU finance ministers agreed to a 3-year loan plan for Greece.
Short-dated Greek bond spreads fell on Thursday after the news that the country would start discussions on the loan package. The yield on 2-year bonds fell to 6.34% from 6.66% on Wednesday. They hit a high of 7.1% last week.
Although the IMF has been involved in co-financed rescue packages before, as in Latvia and Hungary, it was clear that the fund took the lead role in setting conditions and disbursing tranches of money. The IMF would be expected to make available another €10-15 billion as a stand-by loan on top of the €30 billon available from Euro-Zone member-states.
Analysts said uncertainty over the agreement remained high, with reports in the German press suggesting that it might have to be increased to €90 billon.
It appears that the crux of the Greek budget deficit is runaway corruption.
A study to be published in coming weeks by the Washington-based Brookings Institution, finds that bribery and patronage are major contributors to the country's ballooning debt, depriving the Greek state each year of the equivalent of at least 8% of its gross domestic product, or more than €20 billion (about $27 billion).
Greece's budget deficit averaged around 6.5% of GDP over the past five years, including a 13% shortfall last year. If Greece's public sector were as clean and transparent as Sweden's, or the Netherlands', the country might have posted budget surpluses over the past decade, the study suggests.
Greece places last in the 16-nation Euro-Zone in a ranking by World Bank researchers of how well countries control corruption and last in the 27-nation European Union, tied with Bulgaria and Romania.
The Greek financial crisis continues to take center stage in the global financial turmoil. Despite intermittent reports that solutions have been reached, it's clear that a long-term solution will be far more problematic. Until the situation is truly stabilized, Greece's sovereign debt will be at risk.
Marko's Take
Please check out our new YouTube video on the Legality Of The Personal Income Tax. The video can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
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