Archive - Apr 19, 2011 - Story

Even as Greek debt hits new and improved daily record highs each and every day, with the Bund spread for 10 years hitting a ridiculous 1,140, the country continues to pretend it has capital markets access. Although in theory it still does. Even with a Greek restructuring now virtually assured, although as the CreditSights note below notes this would be a political suicide event, the country still managed to sell €1.625 billion of 3 month Bills at the stunning rate of 4.10. Reuters reports: "Greece sold more than 1.6 billion of three-month debt on Tuesday, raising funds to roll over 800 million euros ($1.14 billion) of maturing government paper later in the month, with yields rising above 4 percent. It was priced to yield 4.10 percent, up 25 basis points from an auction in February and around the rate of about 4.2 percent Greece pays on its EU/IMF bailout loans." Yet even with the "attractive" yield the Bid To Cover plunged from 5.08 to 3.45, as the only bidders were banks themselves propped up by the ECB and China: according to PDMA foreign investors accounted for 36% of the issue.

For all those who read the initial attempt at damage control from Jan Hatzius over the S&P warning yesterday, this follow up from Goldman's Alec Phillips will come as no surprise. To all those who may have missed the prompt note which came out after Mohamed El-Erian FT oped, the below will still not come as a surprise. Bottom line: "Although the US already appears to be on the edge of AAA territory by rating agency criteria and further deterioration of those measures seems likely, policy credibility is likely to be more important than the level of fiscal ratios at any given time. While enactment of major structural reforms to entitlement programs or the tax code look challenging in the next year, today’s announcement from S&P may on the margin increase the likelihood that Congress enacts one or more fiscal rules along with the increase in the debt limit, which we already viewed as a good possibility. The most likely change would be discretionary spending caps, which could apply for multiple years and would be difficult to undo once put in place. A second possibility is some version of the “failsafe” concept that President Obama proposed last week, which would require automatic reductions in spending and “tax expenditures” if by 2014 the debt to GDP ratio has not yet stabilized and is not projected to decline in the second half of the decade." Of course as those who followed our notes during the S&P conference call, to a rational man, none of the above would come as credible, therefore inevitably pushing the US to an AA handle by 2013. Of course, this little piece of theater is once again very much irrelevant in the grand scheme of things: by 2013 we will have much bigger issues on our hands.

Gold and silver closed higher yesterday (+0.45% and +0.65%) after S&P, somewhat belatedly, cut its outlook for the US from stable to negative. While the move seemed to surprise some, many market participants have been warning that this was inevitable for some time. Despite somewhat sensationalist reporting, gold did not surge, nor did equities “plummet”. However, both acted as they are expected to with more risky equities selling off internationally and safe haven gold rising marginally in all currencies. Gold was particularly strong in euros due to eurozone contagion fears and rose from €1,035/oz to over €1,050/oz. In dollar terms, soon after rising nearly $20 per ounce, gold gave up the gains with very determined selling seen at the $1,500/oz level. $1,500/oz will likely be reached in the coming days and the question is do we see profit taking and a correction at this level or does gold surprise most market participants again by continuing to rise to the $1,600/oz level.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 19/04/11