Article first published as Portuguese Expensive Bond Sale Hints Bailout Need on Technorati.
Portugal’s latest bond auction was successful on Wednesday, but the yield offered for 1-year bonds has risen sharply, indicating that market is losing confidence in Portugal economy. The sale of 500 million euros worth 1-year bonds was oversubscribed by two and half times. The yield rose to 5.3%, which is too expensive for 1-year bonds. The previous sale of 1-year Portugal bonds yielded 4.8%. Moreover, some of these bonds might have been bought by Portuguese banks, funded by European Central Bank.
As usual, Portugal’s Prime Minister Jose Socrates reiterated that his country did not need outside help. What his country needed was confidence in its economy, he added. S&P rating agency placed Portugal on credit watch citing its huge debt. S&P said Portugal had not done enough to increase its labour flexibility and productivity, which means, Portugal has to decrease wages of the workers.
The yield for 10-year Portuguese bonds fell slightly on Wednesday, but remained at historically high level of 6.85%. However, the yield on German bunds that are considered the safest among the Eurozone countries remained at 2.67%. The difference between yield of German bonds and the yield on any particular country’s bonds is called bond spread of that particular bond of that country. This bond spread is widening day by day for the most indebted countries of the Eurozone despite huge bailouts offered to those countries.
Article first published as Portugal Workers Observe 24-hour Strike against 2011 Austerity Budget on Technorati.
Portugal’s two main two workers’ unions’ joint call for 24 hour strike is going successful as per government and unions’ data. Rail services are paralysed from north to south of the country, with 80% of the rail services not running. Majority of the flight services are cancelled according to government sources. The Joint strike call is said to be the first in 22 years.
The unions are critical of the proposed budget cuts saying it is quite unfair that only the workers have to sacrifice. They say they oppose the government’s top most priorities are only deficit, deficit and deficit. BBC news quoted the unions as saying, all of the country’s ports are closed; air traffic controllers and ground staff of airports are observing strike; bus and ferry links are disrupted; fewer than 10% of the workforce at Volkswagen’s Auto Europa plant have turned up for work.
Unfair Media Criticism
As usual, various media of the western countries from EU to the US have written negative analyses on Portugal strikes. They continued to support austerity measures and to oppose workers’ anger towards austerity measures. They failed to acknowledge the hardships to which the workers across the Europe and the North America were subjected to, even though they are not part of the problem of debt crisis and financial crises. Such an outlook can be gauzed to the ownership of all media by a few multinational media companies.
These MNCs are beneficiaries are the austerity measures imposed by the EU countries in the name of maintaining fiscal discipline, as if the workers’ salaries and pensions are the main sources of fiscal indiscipline. These media companies never acknowledge the indiscipline of the
Irish bailout, still not known how much is planned, failed to alley market worries as debt costs for Ireland, Spain and Portugal continued at high levels. However, most of the European share indices along with that of the US were up, with positive news from the US data.
Jobless claims in the US came down slightly comparing with the previous week. Yesterday, the US revised up its third quarter growth rate from 2% to 2.5%.
The yield on Irish government’s 10 year bond was 8.92%, a record level reached before the bailout talks began. Though Irish government is not going for debt sale as it is fully funded up to the first half of next year with EDB funding, it is still a matter to worry. Because, it denotes that the markets are losing confidence on Ireland’s capacity of repayment of its debt.
The yield on 10 year Portuguese bond was 7.8%, which means the bond spread relative to the German bund was 4.8%. The Spanish-German 10 year bond spread recorded at 2.6% a life time high for Spain.
Article first published as Portugal, Spain Worry Contagion from Ireland on Technorati.
A country, which once recorded more than 30 percent GDP growth, is now threatening European Union for its liquidity problem and soaring debt costs. Though the Ireland authorities are repeatedly telling that they do not need any bailout from the European emergency fund, markets are not in a position to believe. It seems they recall the same type of confident announcements by Greece Prime Minister George Papandreou that his country only needed assurances from the EU but not monetary aid. Then, ultimately Greece had to claim the financial aid from the EU and the IMF worth 110 billion euros.
Worries of Portugal and Spain
Finance ministers of Portugal and Spain are worried that Ireland crisis will spread to their countries if the Ireland does not move fast to assure the markets. Portugal’s debt costs are already going up. Spain is also almost ready to follow suit.
Portugal finance minister Fernando Teixeira dos Santos is quoted by BBC as urging Ireland to do the right thing for the Euro and accept bail out. Spain’s Treasury Secretary has also reportedly asked Ireland to act quickly to cool down the market’s worries about uncertainties prevailing on Ireland’s capacity of debt repayment.
Bloomberg | Jul 23, 2010
The success of the European Union’s bank stress tests hinges on how much detail regulators provide about the basis for their conclusions, not on the number of lenders that fail, investors said. “The more transparency, the more important that the results will be,” said Peter Braendle, who helps manage $51 billion at Swisscanto Asset Management in Zurich. “If the methodology is a black box and we just get some results that will not be very helpful.” Regulators are scrutinizing banks to assess if they have enough capital, defined as a Tier 1 capital ratio of at least 6 percent, to withstand a recession and sovereign debt crisis, according to a document from the Committee of European Banking Supervisors. Lenders that fail the trials will be made to raise additional capital. The results will be published by CEBS and national regulators starting at 6 p.m. Brussels time today.
The assessors haven’t so far provided full details of their criteria raising concern among investors they will not be stringent enough. U.S. regulators published the metrics they used to test their banks before they released their results last year. U.S. bank stocks rallied 36 percent in the seven months following the trials. Governments are publishing the results of the region’s first coordinated stress tests as they seek to end concerns about the health of the banking system almost three years after the subprime crisis roiled global financial markets. The 54- member Bloomberg Europe Banks and Financial Services Index has risen 9.3 percent this month, boosted by optimism that lenders will pass. By comparison, the U.S. Standard & Poor’s Financials Index has gained about 4.7 percent.
‘Create Your Own’
“It’s pretty clear that a lot of banks will pass this test,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment, including bank shares. “It will be more important to see what raw data will be published. With that you can create your own, more stringent scenarios.” Ten of the 91 banks being tested are likely to fail, Goldman Sachs Group Inc. analysts said in a note to clients today, citing their own survey. Analysts’ estimates for the amount of capital European banks will need to raise range from 30 billion euros ($38.7 billion), according to Nomura Holdings Inc., to as much as 85 billion euros at Barclays Capital. Investors have criticized the tests, saying they may not be rigorous enough. In particular, they are questioning to what extent regulators are examining banks’ sovereign-debt holdings, including how government bonds in the trading and banking books will be valued in the event of a sovereign debt crisis.
Bloomberg | Jul 20, 2010
Spain, Ireland and Greece sold almost 10 billion euros ($13 billion) of debt, with demand rising for shorter-dated securities, on optimism the European Union’s aid programs will contain the region’s fiscal crisis. Hungary raised less than planned at a sale of three-month bills, triggering a decline in the forint. Greece, which activated an EU-led bailout package in May to avoid default, auctioned 13-week bills, with investors bidding for 3.85 times the amount on offer, compared with a bid-to-cover ratio of 3.64 times at a sale of 26-week securities a week ago. Spain and Ireland also sold debt.
“Overall funding pressure is losing steam,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “We expect the peripheral markets to enjoy even more potential outperformance against the core. Obviously we still have this event risk looming with the banks’ stress tests.” Concern that Europe’s high-deficit countries wouldn’t be able to meet their financing needs pushed yield premiums to euro-era records and led the EU to design a 110 billion-euro bailout for Greece and a broader 750 billion-euro backstop for the region. The debt crisis prompted governments across Europe to impose additional austerity measures to convince investors they were serious about taming their deficits.
Bloomberg | Jul 15, 2010
Investors bought all 3 billion euros ($3.8 billion) of 15-year bonds offered by Spain, with demand strong enough to ease concern the nation would struggle to cover debt payments after Greece’s bailout. “The Spanish auction went well,” said Chiara Cremonesi, a strategist at UniCredit Research in London. “Appetite for Spanish paper is alive.” Spain, which has to repay 24.7 billion euros of debt this month, has the third-largest deficit in the euro region and its banks are dependent on the European Central Bank for funds. Prime Minister Jose Luis Rodriquez Zapatero, risks losing power as he pushes through austerity measures including cutting workers’ wages, freezing pensions and reducing severance pay. Today’s auction raised the maximum offered at an average yield of 5.116 percent, compared with 4.434 percent at a sale of the same securities on April 22, the Bank of Spain said. Demand was 2.57 times the amount sold, compared with the bid-to-cover ratio of 1.79 in April. Spanish bonds rose and the euro strengthened. The government is hoping the publication of stress tests next week will allow its financial institutions to access capital markets. Spanish lenders borrowed a record 126.3 billion euros from the ECB in June, up 48 percent from the previous month, according to data compiled by the Bank of Spain. That compares with a drop of 4 percent to 496.6 billion euros for euro-area lenders as a whole.
The yield premium investors demand to hold Spain’s 10-year debt over comparable German bonds fell to 199.6 basis points after the auction, from 211 basis points earlier. The euro gained 0.4 percent to 1.2792 against the dollar. “People who expected the end of the world in July because of the redemptions have been proved wrong,” said Gianluca Salford, a fixed-income strategist at JPMorgan Chase & Co. in London. Spain’s auction follows Greece’s sale of Treasury bills on July 13, its first since the country accepted a three-year bailout plan from the European Union in May after its borrowing costs surged. Greece secured an interest rate at that sale below the 5 percent charged on the emergency European loans.
Reuters | Tue Jul 13, 2010 | 2:48pm IST
Here is a timeline of events in the euro zone debt crisis in reverse chronological order:
July 13 – Moody’s cuts Portugal’s debt rating by two notches to A1 citing rising debt and weak growth prospects, and says the country may need more austerity measures in its 2011 budget.
July 8 – Greece’s main private and public sector unions strike for 24 hours to protest against sweeping pension reform. Greek lawmakers vote in favour of the pension reform.
July 7 – Germany agrees on a four-year, 80 billion euro ($100 billion) austerity plan, committing the country to cutting its budget deficit and shoring up Chancellor Angela Merkel’s centre-right coalition.
— Europe lists 91 banks taking part in financial stress tests, which are expected to provide more detail about problematic assets, including bonds issued by peripheral euro zone countries and loan exposures to troubled pockets.
June 30 – A strike by Spanish underground rail workers causes more traffic chaos in Madrid as unions threaten further stoppages over austerity measures.
June 29 – About 10,000 people take part in marches across Athens during a nationwide strike against austerity measures.
— Greece starts to debate overhaul of pensions to raise women’s retirement age from 60 to match men at 65 and demand more years at work to qualify for a pension. Greece’s debt reached 133 percent of GDP in 2010.
June 25 – The CGIL, Italy’s biggest union with 6 million members, holds rallies in Rome, Milan and other cities to force the government to redraft a 25-billion-euro austerity package.
BBC News | Tuesday, 13 July 2010 | 09:13 GMT
International ratings agency Moody’s has downgraded Portugal’s sovereign debt rating, citing worsening public finances and weak growth prospects. It cut the rating by two notches from the maximum AA2 to A1. And it said Portugal might need further austerity measures, as well as those already announced. The euro fell against the dollar and sterling but market reaction was muted. Rival agency Standard & Poor’s already rates Portugal two grades lower at A-. The downgrade means that the rating agency is losing confidence in the Portuguese government’s ability to meet its financial obligations.
A sovereign debt downgrade tends to make it more expensive for a government to raise money on the international markets. However, the bonds are still some way from the “junk” status suffered by Greece. The latest available figures show Portugal’s total government debt stood at roughly 77% of GDP at the end of 2009. This is quite similar to the numbers in countries such as France and Germany, two of Europe’s economic powerhouses. However, Portugal’s economy is significantly smaller in absolute terms and is not expected to revive any time soon. Continue reading
Bloomberg | Jul 12, 2010 | 19:35 IST
The European Commission told government officials that failure to publish individual banks’ exposure to sovereign debt could damage investor confidence. “There is considerable opposition to the publication of individual exposures to sovereign debt,” the European Union’s executive arm said in a confidential letter dated July 9 that was obtained by Bloomberg News. “Stepping back” from planned publication of this information “would give the impression that we have something to hide.” EU regulators are examining the strength of 91 banks to determine if they can survive potential losses on sovereign-bond holdings. They are counting on the tests to reassure investors about the health of financial institutions from Germany’s WestLB AG and Bayerische Landesbank to Spanish savings banks as the debt crisis pummels the bonds of Greece, Spain and Portugal. EU finance officials are currently debating how much detail from the tests to disclose. The results are scheduled to be released on July 23. “We are increasingly worried to note an apparent weakening of the commitment to transparency,” the commission said in the letter to the EU’s Economic and Financial Committee, which comprises senior officials from member states, the commission and the European Central Bank. If the tests aren’t “credible and transparent,” there is a “high risk that it will disappoint the markets.”
The EFC prepares the agenda for monthly meetings of euro- region finance ministers, who are gathering in Brussels today to discuss the publication of the tests. German Finance Minister Wolfgang Schaeuble told reporters before the meeting that the tests will be an “important step” toward easing investors’ concerns about the strength of the region’s banks. The commission also said in the letter that regulators should publish data on banks’ Tier 1 capital ratio that excludes government aid. “Some national supervisors have suggested that banks’ Tier 1 ratios without government support should not be published,” it said. “We believe that these data should be published because it constitutes important information for the markets.”
Bloomberg | Jul 8, 2010
European stress tests on 91 of the region’s biggest banks drew criticism from analysts who said regulators are underestimating probable losses on Greek and Spanish government bonds. The tests are designed to assess how banks will be able to absorb losses on loans and government bonds, the Committee of European Banking Supervisors said yesterday. Regulators have told lenders the tests may assume a loss of about 17 percent on Greek government debt, 3 percent on Spanish bonds and none on German debt, said two people briefed on the talks who declined to be identified because the details are private. “This isn’t a stress test,” said Jaap Meijer, a London- based analyst at Evolution Securities Ltd. It’s “merely the current valuation of government bonds.” Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by CEBS. Derivatives known as recovery swaps are trading at rates that imply investors would get back about 40 percent in a Greek default or restructuring. “I wonder how much these stress tests are reverse- engineered to inspire confidence in the market” and banks, said Bruce Packard, an analyst at Seymour Pierce Ltd. in London. “If they are too aggressive, everyone fails.”
The 54-member Bloomberg Europe Banks and Financial Services Index increased 1.5 percent today, bringing this week’s gain to 8.4 percent. Royal Bank of Scotland Group Plc rose 3.7 percent to 44.42 pence as of 8:44 a.m. in London trading. Paris-based BNP Paribas SA climbed 3 percent to 49.43 euros and Dexia SA, the largest lender to local government in France and Belgium, rose 3.5 percent to 3.17 euros. Lenders that account for 65 percent of the EU banking industry will be tested, including 14 German banks, 27 Spanish savings banks, 6 Greek banks, 5 Italian banks, 4 French banks and 4 British banks, CEBS said in a statement. EU regulators are relying on the stress tests to restore public confidence in banks amid concern that some lenders don’t have enough capital to
BBC News | Sunday, 30 May 2010 | 11:09 GMT
Another Danish pharmaceutical company has withdrawn products from Greece in protest at the government’s decision to cut the prices of medicines by 25%. The Leo Pharma Company says it is suspending sales of two popular drugs because the price reductions will cause job losses across Europe. The Greek government is struggling with a debt crisis. It has condemned as unfair the action of Leo Pharma, and another Danish company, Novo Nordisk.
The decision by Leo Pharma to suspend distribution of an anti-blood-clotting agent and a remedy for psoriasis takes Greece one step closer towards an all-out boycott by medical suppliers. Kristian Hart Hansen, a senior director of the company, said the 25% price reduction would encourage similar moves in other countries with large debt problems such as Ireland and Italy. He warned that unless the company took action, there would job losses across Europe, including Denmark where the company is based. Earlier this week another Danish company, Novo Nordisk, withdrew sales of its state-of-the-art insulin product from Greece for the same reason. Leo Pharma claims it is owed 244m euros ($300m; £207m) in unpaid bills by the Greek state.
Reuters | Sat May 29, 2010 | 3:11am IST
Fitch downgraded Spain’s credit rating on Friday, a day after the country adopted austerity measures, demonstrating the difficulty of steering out of the euro zone debt crisis with budget cuts that restrict growth. The widely anticipated downgrade followed a warning by a European Central Bank policymaker that Europe’s predicament could spread to other regions while labor unions threatened strikes and investment banks were hurting. Spain’s parliament approved a 15 billion euro ($18.4 billion) spending cut on Thursday, following the lead of Greece, Portugal and Italy in trying to ease a crisis that has undercut the euro, rattled banks and threatened European cohesion. The euro has fallen nearly 8 percent versus the U.S. dollar in May, and gold hit a record high earlier this month as investors searched for a safe haven.
On Wall Street, the Dow and the S&P 500 both fell more than 1 percent on Friday, contributing to the worst monthly decline for the indexes since February 2009. The Fitch downgrade "definitely spooked the market, no doubt about it," said Terry Morris, senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania. Spain’s cuts have angered labor unions and Fitch Ratings cited lower economic growth resulting from "a lower level of private sector and external indebtedness" in knocking the country’s rating to AA+ from AAA. Standard & Poor’s downgraded Spain last month but put its outlook at negative while Fitch rated it stable. "Stable? Spain should be downgraded multiple notches," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.
BBC News | Wednesday, 26 May 2010 | 16:09 GMT
The eurozone must overhaul the management of its economy to ensure economic recovery and the survival of the euro, a global body has warned. According to the Organisation for Economic Co-operation and Development (OECD), the recent debt crisis poses a threat to Europe’s weak recovery. "Bolder measures" are needed to be taken to ensure the crisis is brought under control, the OECD said. It forecast the eurozone’s economy would grow by 1.2% this year. That is better than the 0.9% growth estimate the OECD made in its last economic outlook in November. "A gradual recovery is under way driven by economic policy stimulus, a rebound in world trade and improving financial conditions," the organisation, made up of 31 countries, said. "[But] the sovereign debt crisis has highlighted the need for the euro area to strengthen significantly its institutional and operational architecture to dissipate doubts about the long-term viability of the monetary union," it said.
Interest rate warning
The report added that "bolder measures" needed to be taken to "ensure fiscal discipline". Following the multi-billion euro bail-out package for Greece announced earlier this month, Germany has been among those calling for tougher measures for member states that do not manage their finances effectively. The OECD appeared to agree, arguing for "closer surveillance" of public finances by regulators and more effective sanctions for countries that fail to reduce borrowing quickly enough. Globally, OECD members are expected to grow by 2.7% this year, and 2.8% in 2011.
Bloomberg | May 21, 2010 | 17:16 EDT
Any investor who wants to gauge how serious the stock market’s retreat is need only know the Standard & Poor’s 500 Index has fallen below its low on May 6, when panic selling prompted calls for reform. The equity index retreated 3.9 percent yesterday in its biggest loss in 14 months, sinking to 1,071.59, and slipped as low as 1,055.90 today. That compares with 1,065.79, the low two weeks ago when $862 billion was wiped out in 20 minutes. The options market benchmark known as the VIX soared 30 percent to 45.79 yesterday, meaning expectations for volatility are the highest in 13 months. Europe’s debt crisis has pushed the S&P 500 down 12 percent during the past month as concern grew that deficits in Greece, Spain and Portugal will unhinge the global economic recovery. Regulators have proposed six potential causes of the May 6 crash, including losses in exchange-traded funds and an unwillingness to match orders among some electronic traders.
“As far as we know, it’s not a computer error today,” Jerome Dodson, who oversees $4 billion as president of Parnassus Investments in San Francisco, said of yesterday’s slump. “The May 6 flash crash was driven by technical troubles and didn’t reflect any fundamentals. It’s surprising that regular trading would take us down to the same levels as a technical glitch.” The S&P 500 surged in the final 20 minutes of trading today, posting a 1.5 percent gain to 1,087.69 as of 4 p.m. in New York.
The decline in U.S. shares deepened yesterday after the June futures contract for the S&P 500 fell below its 200-day average for the first time since July 2009, a bearish sign to traders who base investments on price