As Global stock markets recover from the sudden volatility of the last few weeks, the Euro-Zone nations have been tapping into the bond markets to raise funds to finance their growing budget deficits and maturities on the external debt.
Germany had difficulties selling its 5-year bonds this morning, as record low yields curtailed demand, but the sale of a small issue of Portuguese bonds was well received, helped by more attractive yields.
Berlin's 5-year bonds fell in post-auction trade, driving the yield to a session peak of 1.524% versus 1.492% ahead of the auction. However, it remained near a record low of 1.402% reached on Tuesday.
Portugal sold €1 billion of 2015 bonds at an average yield of 3.70%, drawing demand of 1.8 times the amount sought, steady from the previous auction in February.
Italy will sell up to €1.5 billion of inflation-protected bonds on Thursday and up to €9.5 billion of nominal bonds on Friday.
Spain struggled to issue debt on Tuesday amid rising tensions in the new issue markets after the seizure of one of the country’s savings banks over the weekend.
Spain had to pay a big premium to sell €3.06 billion in 3-month and 6-month bills on Tuesday, reflecting investor anxiety about its growing debt and weakening financial sector, prompting worries that the country could suffer a bond auction failure, where not enough investors turn up to buy its debt.
The yield on Spain’s 6-month bill rose to 1.32% compared with 0.76% in April, while the yield on the 3-month bill rose to 0.7% from 0.549% .
In a sign of how investors are increasingly selective over Euro-Zone debt, the Dutch successfully raised €1.02 billion.
The Netherlands, which has a triple A credit rating with relatively strong public finances, raised the money in 5-year bonds at an average yield of 1.74% and 7-year bonds at an average yield of 2.305%
The debt problem is hardly unique to Europe. The United States is also facing a massive budget deficit and very onerous levels of external debt. In fact, Moody's has warned that the U.S. faces the loss of ITS triple A credit rating if the debt situation is not brought under control. Readers of "Marko's Take" know that the worldwide and domestic debt situation is going parabolic.
Recent statistics on external debt to Gross Domestic Product (GDP) reveal how fragile the global financial structure is. Sometime in the next 12 months, the ratio here in the U.S. will exceed 100%, which will put Washington in a club whose membership is growing rapidly.
Countries with Debt/GDP ratios in excess of 100% include Japan, Britain, Zimbabwe, Sweden, the Netherlands, Greece, Ireland, Belgium, Denmark, Austria, France, Portugal, Finland, Norway, Spain and Italy. Japan, is the highest among the G-20 with a ratio well in excess of 200%.
The proposed solution to the deteriorating situation has been to raise more debt. Would anyone propose assisting a cocaine addict by giving them more cocaine? As a result, the liklihood that the debt problem will be fixed is NIL. The only approach which can solve the problem is a dramatic restructuring of these countries' economic systems, including getting a handle on runaway social welfare programs which are exploding with the aging population structures.
Temporarily, the crisis in Sovereign Debt has taken a back seat with the much better reception in the credit markets. This will prove to be quite fleeting, with a more severe crisis inevitable, especially as the global economic weakness re-asserts itself.
Marko's Take
For new readers with a political bent, come visit us on You Tube. Our new video blog series covers such topics as The Federal Reserve, Social Security, Peak Oil and Personal Income Taxes. To access our videos click here http://www.youtube.com/markostaketv.
.
Showing posts with label Italy. Show all posts
Showing posts with label Italy. Show all posts
Wednesday, May 26, 2010
Thursday, May 13, 2010
PIGS Go To Slaughter
Now that the Greek bailout has been undertaken, the marketplace is turning its attention to other nations believed to be under economic or financial stress. The term "PIGS" originally referred to the "fearful foursome" of Portugal, Ireland, Greece and Spain. Italy has appeared to be on the verge of joining this uneviable assemblage of financial wreckage - creating the revised "PIIGS".
As has been written here in recent weeks, the so-called austerity program enacted by Greece is a farce. It is hardly "austere" to force lazy government workers to actually work! It is hardly austere to reduce the absurdly generous early retirement packages which allow some civil servants to retire as young as 45. Where can I sign up for that deal?
The other PIGS are now enacting their own "austerity" measures in an attempt to be more pro-active before their nations hit the crisis fever that was triggered by the Greek financial meltdown.
José Sócrates, Portugal’s prime minister, is expected to announce tough new austerity measures today, including a “crisis tax” on companies and wages, to reduce the country’s massive budget deficit.
Portugal's new austerity package, which follows similar moves by Spain, Greece and Ireland, is being introduced under pressure from Lisbon’s European Union partners for sharp budget cuts in support of a €750 billion emergency plan to defend the Euro.
Angry trade union leaders immediately called for a “mobilisation” against what they called “harsh and unjust” measures, expected to include a 1 % increase in value added tax to 21% and increases of up to 1.5 % in income tax. Unions opposed to cuts? Shocking! (Sarcasm intentional)!
The increases are expected to include a 2.5 % increase in corporate tax to 27.5 %. Politicians and public sector managers will also see their salaries cut by 5 %.
The new measures are designed to reduce the budget deficit by an additional €2.1 billion, from 9.4 % of Gross Domestic Product (GDP) in 2009 to 7 % this year and 2.8 % in 2013. Portugal’s original deficit target for this year was 8.3 % of GDP.
José Luis Rodríguez Zapatero, Spain’s prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 % cut in civil service pay to accelerate cuts to the country’s budget deficit.
In what he called one of the hardest speeches of his life, Mr Zapatero told parliament how Spain planned to reduce its deficit by an extra 0.5 % of GDP this year and another 1 % of GDP in 2011, a total of €15 billion.
The new measures should help bring the deficit down from 11.2 % of GDP in 2009 to just over 6 % of GDP in 2011.
Surprisingly, trade unionists were outraged at what they said were harsh measures. One regional leader of the small United Left political party called for “rebellion and a general strike”. Shocking! (Sarcasm intentional)!
Thus far, Ireland has surprised the market skeptics by pro-actively embarking on a draconian plan to tackle its debt, which includes large public sector pay cuts, and resolve the bad loan problems at its banks.
Pledging to cut public sector spending by 7.5 % of GDP this year alone has not spared Ireland market pain. Last week its bonds were trading at a spread of 3 % over German Bunds. The moves have prevented the country from being deemed a full-blown basket case.
Italy, has been on the cusp of becoming the 5th member of this elite group. However, a very well received bond sale indicates that Rome is not yet ready for inclusion. Italy just sold €3 billion of 2015 notes at an average yield of just 2.57 %, which was 2 basis points lower than existing comparable debt. This demonstrates a substantial level of market confidence.
The problems in the Euro-Zone only BEGIN with Greece. Bail-out or not, the key to success will be a return to economic growth for all the affected nations. Greek unemployment is now more than 12% and is expected to rise to 14% over the next year or so. Until the European Union economies start to show growth, the budget deficits will continue to widen and the threat of a massive round of sovereign debt defaults will be an ongoing issue.
Marko's Take
Please visit us on You Tube. You can access video blogs covering topics such as the Federal Reserve, Income Taxes, Social Security, Peak Oil and a mock "State Of The Union" address by clicking here http://www.youtube.com/markostaketv. Our most recent video is on the FRAUD and Ponzi Scheme known as Social Security. It can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
As has been written here in recent weeks, the so-called austerity program enacted by Greece is a farce. It is hardly "austere" to force lazy government workers to actually work! It is hardly austere to reduce the absurdly generous early retirement packages which allow some civil servants to retire as young as 45. Where can I sign up for that deal?
The other PIGS are now enacting their own "austerity" measures in an attempt to be more pro-active before their nations hit the crisis fever that was triggered by the Greek financial meltdown.
José Sócrates, Portugal’s prime minister, is expected to announce tough new austerity measures today, including a “crisis tax” on companies and wages, to reduce the country’s massive budget deficit.
Portugal's new austerity package, which follows similar moves by Spain, Greece and Ireland, is being introduced under pressure from Lisbon’s European Union partners for sharp budget cuts in support of a €750 billion emergency plan to defend the Euro.
Angry trade union leaders immediately called for a “mobilisation” against what they called “harsh and unjust” measures, expected to include a 1 % increase in value added tax to 21% and increases of up to 1.5 % in income tax. Unions opposed to cuts? Shocking! (Sarcasm intentional)!
The increases are expected to include a 2.5 % increase in corporate tax to 27.5 %. Politicians and public sector managers will also see their salaries cut by 5 %.
The new measures are designed to reduce the budget deficit by an additional €2.1 billion, from 9.4 % of Gross Domestic Product (GDP) in 2009 to 7 % this year and 2.8 % in 2013. Portugal’s original deficit target for this year was 8.3 % of GDP.
José Luis Rodríguez Zapatero, Spain’s prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 % cut in civil service pay to accelerate cuts to the country’s budget deficit.
In what he called one of the hardest speeches of his life, Mr Zapatero told parliament how Spain planned to reduce its deficit by an extra 0.5 % of GDP this year and another 1 % of GDP in 2011, a total of €15 billion.
The new measures should help bring the deficit down from 11.2 % of GDP in 2009 to just over 6 % of GDP in 2011.
Surprisingly, trade unionists were outraged at what they said were harsh measures. One regional leader of the small United Left political party called for “rebellion and a general strike”. Shocking! (Sarcasm intentional)!
Thus far, Ireland has surprised the market skeptics by pro-actively embarking on a draconian plan to tackle its debt, which includes large public sector pay cuts, and resolve the bad loan problems at its banks.
Pledging to cut public sector spending by 7.5 % of GDP this year alone has not spared Ireland market pain. Last week its bonds were trading at a spread of 3 % over German Bunds. The moves have prevented the country from being deemed a full-blown basket case.
Italy, has been on the cusp of becoming the 5th member of this elite group. However, a very well received bond sale indicates that Rome is not yet ready for inclusion. Italy just sold €3 billion of 2015 notes at an average yield of just 2.57 %, which was 2 basis points lower than existing comparable debt. This demonstrates a substantial level of market confidence.
The problems in the Euro-Zone only BEGIN with Greece. Bail-out or not, the key to success will be a return to economic growth for all the affected nations. Greek unemployment is now more than 12% and is expected to rise to 14% over the next year or so. Until the European Union economies start to show growth, the budget deficits will continue to widen and the threat of a massive round of sovereign debt defaults will be an ongoing issue.
Marko's Take
Please visit us on You Tube. You can access video blogs covering topics such as the Federal Reserve, Income Taxes, Social Security, Peak Oil and a mock "State Of The Union" address by clicking here http://www.youtube.com/markostaketv. Our most recent video is on the FRAUD and Ponzi Scheme known as Social Security. It can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
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.
Tuesday, February 9, 2010
Sovereign Debt Crisis Threatens To Take Down World Economy
First we had countries which fell under the acronym "BRIC" - Brazil, Russia, India and China. These countries were believed to be the emerging world powerhouses. Now, we have a new one: "PIGS", or Portugal, Italy, Greece and Spain. In the case of PIGS, the acronym is not in the least flattering. Rather, it refers to a group of countries in such financial trouble that their sovereign debt is threatening to pull down the European Union (EU) and possibly the global economy altogether!
The sign that major stresses can be felt is being witnessed in both the bond markets and the countries'
"Credit Default Swaps" (CDS), which price the "insurance" against default. Recently, Spain's and Italy's bonds have carried a CDS of 1.65%, Italy's have risen above 1.5%, while Greece's have expanded to a frightening 4%. To put things in perspective, the United States, no longer considered a great credit, has an active CDS market priced at less than 0.5%! Ireland, not officially a PIGS country, but guilty by association, has its CDS in the 1.5% range.
About six weeks ago, I wrote a piece on Soverien Debt (http://markostake.blogspot.com/2009/12/investing-in-soverign-debt-much-riskier.html. Reading this might provide some excellent background for anyone unfamiliar with the issues.
According to a recent article in the Wall St. Journal, the global economic downturn and extensive government spending to fight it, have led to major fiscal problems in Europe, especially for less-dynamic economies like Greece, Portugal, Ireland and Spain. Such countries took advantage of their membership in the 16-nation euro-bloc during the boom by borrowing at unusually low interest rates. But now, investors are worried about how they will reduce yawning budget deficits that exceed 12% of their economic output in the case of Greece and Ireland.
European policy makers are trying to pressure countries like Greece into taking stronger action to fix their finances.
The potential damage from any sovereign default in the EU will affect the entire region which shares a currency but NOT fiscal policies. Now there is talk that Greece is looking to be "bailed out". Wonder where I've heard the words "bailed" and "out" before?
The sovereign debt isssue is another reason that 2010 is shaping up to be one nasty year!
Questions? Disagree? Agree? TAKE ME ON!
Marko's Take
The sign that major stresses can be felt is being witnessed in both the bond markets and the countries'
"Credit Default Swaps" (CDS), which price the "insurance" against default. Recently, Spain's and Italy's bonds have carried a CDS of 1.65%, Italy's have risen above 1.5%, while Greece's have expanded to a frightening 4%. To put things in perspective, the United States, no longer considered a great credit, has an active CDS market priced at less than 0.5%! Ireland, not officially a PIGS country, but guilty by association, has its CDS in the 1.5% range.
About six weeks ago, I wrote a piece on Soverien Debt (http://markostake.blogspot.com/2009/12/investing-in-soverign-debt-much-riskier.html. Reading this might provide some excellent background for anyone unfamiliar with the issues.
According to a recent article in the Wall St. Journal, the global economic downturn and extensive government spending to fight it, have led to major fiscal problems in Europe, especially for less-dynamic economies like Greece, Portugal, Ireland and Spain. Such countries took advantage of their membership in the 16-nation euro-bloc during the boom by borrowing at unusually low interest rates. But now, investors are worried about how they will reduce yawning budget deficits that exceed 12% of their economic output in the case of Greece and Ireland.
European policy makers are trying to pressure countries like Greece into taking stronger action to fix their finances.
The potential damage from any sovereign default in the EU will affect the entire region which shares a currency but NOT fiscal policies. Now there is talk that Greece is looking to be "bailed out". Wonder where I've heard the words "bailed" and "out" before?
The sovereign debt isssue is another reason that 2010 is shaping up to be one nasty year!
Questions? Disagree? Agree? TAKE ME ON!
Marko's Take
Subscribe to:
Posts (Atom)