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ECB Peripheral Bond Buying Plunges From €2.7 Billion To €600 Million In The Prior Week
In the past few days, European peripheral spreads have once again taken to widening both in absolute terms and relative to Bunds. The culprit: the ECB's permabid for insolvent debt has plunged from €2.7 billion to €603 million in the past week: this represents the lowest amount of bonds purchased by the ECB since the beginning of November. And without the backstop of wanton ECB buying sure enough the sellers emerge. Total debt holdings in the ECB's SMP program are now €72.5 billion. Incidentally one country which is certainly not benefiting from Jean Claude Trichet's largess with his bank's money is France, whose CDS earlier today hit an all time wide of over 100 bps on completely unfounded rumors that the country may be downgraded by one or more rating agencies. At this point expect to see the chart below yoyo in direct correlation to just how steep the sell off of European bonds may have been in the prior week.
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France’s AAA Grade at Risk as Rating Cuts Spread: Euro Credit Paul Dobson and Keith JenkinsDec 20, 2010 6:56 am ETDec. 20 (Bloomberg) -- France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut, analysts and investors said.
Moody’s Investors Service said Dec. 15 it may lower Spain’s rating, citing “substantial funding requirements,” and slashed Ireland’s rating by five levels on Dec. 17. Standard & Poor’s is reviewing its assessments of Ireland, Portugal and Greece. Costs to insure French government debt rose to a record today with the country’s credit default swaps more expensive than lower-rated securities from the Czech Republic and Chile.
“Every sovereign may get penalized in the year ahead,” said Toby Nangle, who helps oversee $46 billion as director of asset allocation at Baring Asset Management in London. “It would be a big deal if France was to have its AAA rating stripped. I don’t think the likelihood of a downgrade is reflected in the market.”
http://washpost.bloomberg.com/Story?docId=1376-LDOID207SXKX01-7EL2PVOM6A...
This Bloomberg story is the most disgraceful attempt at initiating a self-fulfilling prophecy. None of the quotes back up the headline or the dramatic first paragraph.
Read the Reuters story in comparison and learn from journalists who actually do their job.
French rating solid despite rise in debt insurance cost
By Leigh Thomas
PARIS (Reuters) - Lingering jitters about France's debt have helped to push the cost of insuring against a French default to an all-time high but most analysts think that the country's cherished AAA rating is safe for now.
As the euro zone's debt crisis persists, market speculation about who might be another weak link means that countries as big as France are obliged to respond to investor fears, even if they start from a much more comfortable position than small economies such as Greece or Ireland, both now on life support.
Budget Minister Francois Baroin sought to dismiss such rumours on November 30, insisting that French debt was as safe an investment as German bonds.
Five-year credit default swaps (CDS) on French government bonds widened on Monday by three basis points to a record of 107 bps, according to data monitor Markit.
This means it costs 107,000 euros to protect 10 million euros of exposure to French bonds.
"There are some rumours of a downgrade floating around. That's just unsubstantiated rumour, but it could be a trigger for CDS," Markit analyst Gavan Nolan said, noting liquidity was thin, contributing to price moves.
Analysts said the prospect that France could lose its AAA rating was remote, even after Spain, Ireland, Greece and Belgium came under pressure from ratings agencies last week over their strained public finances.
"Among the AAA countries with France having debt to GDP (gross domestic product) higher than in Germany or the Netherlands they (France) are seen by some as a possible candidate," Barclays Capital analyst Huw Worthington said.
"But I would really be very surprised if you saw any movement from the ratings agencies at all," he added.
France's public deficit is set to hit 7.7 percent of gross domestic product (GDP) in 2010, and the government aims to cut the gap to 6 percent by the end of 2011 as a first phase of a plan to trim it to a European Union limit of 3 percent in 2013.
According to the government, France's public debt will reach a peak of 87.4 percent of GDP in 2012 before it starts falling in 2013 when it is expected to ease to 86.8 percent.
"Among the AAA countries, it is the country in the euro zone that has the worst public finance outlook," Unicredit analyst Chiara Cremonesi said.
"But aside from this we don't see the risk of France losing its triple AAA rating," she added.
The premium investors demand to hold France's 10-year bonds instead of equivalent German bonds has fallen from a recent high reached on November 30.
The so-called spread between French and German 10-year bond yields stood at 37 bps on Monday , down from 55 bps at the end of November.
DEFICIT REDUCTION SEEN ON TRACK
"What I see is that France is committed to a deficit reduction policy that is not easy to implement," said BNP Paribas interest rate strategist Patrick Jacq.
He said that even if 2011 growth proved weaker than the government's "optimistic" forecast of 2.0 percent it would not derail deficit reduction efforts.
"If an AAA country were to be downgraded, I think that there are other countries in very complicated situations," Jacq said, citing the example of the United States and Britain.
Analysts at ING said in a research note on Friday that although France's AAA credit rating was secure, it could come under pressure.
"We are not expecting a downgrade, but it would just take one of the agencies to move it to negative outlook for things to get quite messy. Not our base case, but something to keep an eye on for 2011," they said.
(Additional reporting by William James and Emily Flitter in London; editing by Patrick Graham)
The whole world hinges on a bunch of 'leaders' financial and otherwise who are basically children with their hands over their eyes yelling 'you cant see me!'.
When the euro block finally falls apart, watch the genesis of the marcko, fiasco and ostricho.
Nice - adding in the Beauzo & the Pinnochio
Is the Pinnochio the note introduced to replace the debased Bernanquo?
too funny!
The first thing I thought when I saw the reported wipe out in buying for the Euro bonds was "well, nobody's perfect"; (sarcasm, irony, on)
PIMCO's Bosomworth saying Greece, Ireland, Portugal should leave Euro.
"FRANKFURT — Greece, Ireland and Portugal should leave the eurozone to get their economies back on track, a senior executive of the world's biggest bond investor, Pimco, said on Monday in an interview.
"Without their own currency or large fund transfers, Greece, Ireland and Portugal will not be able to land on their feet," Andrew Bosomworth, head of Pimco Europe's portfolio, told the German daily Die Welt."
http://www.google.com/hostednews/afp/article/ALeqM5jAEPucSu8eqpNlRdk7kFd...
What is the SMP program? Is that when the banks buying the bonds at auction then go to the ECB for repo?
http://www.reuters.com/article/idUSLDE6B01RC20101202
No, the Securities Markets Program is the outright (but totally not direct!) bond purchases.
I'm beginning to give up hope of a market collpase and the perpetrators getting their just deserts.
All I want for christmas is a few bankrupt bankers and bernanks head on a stick
Santa, if you're out there....
Offshore might be a superior alternative to US equities, specifically the Swiss Franc.
Personally, I think what will happen is what we saw Friday and so far today.
Namely, people who left bonds . . . will return to them. There will be no growth. It is scared money and scared money (the vast majority of money is rightfully scared) will never, EVER go to Gold. Nor will it go to stocks.
It will go to US bonds, as it always has. There, it will be protected from default by printing and from inflation by perpetual oil choked zero growth.
printing is default.
crashsi
why won't it just go to cash in banks in the TPTF?
surely thats the safeest thing
thats where my money is till I see some solid sign of what will; hapopen long term
no way i want to risk losing capital for any amount of yield
That's a good point. It might.
I think not, though, because scared money also doesn't like to do major things, like yank out of a T Rowe Price IRA to get moved to a bank with CDs. It's a hassle.
Rather, scared money looks at the T Rowe bond fund performances and sees the recent decline, but also perhaps the surge the last few days -- and certainly the excellent 2010 performance.
I think they go right back in come January, at yields of 4% -- which will look good compared to CD yields.
Remember, this is scared money that is smart. It ignored the "trade every single human being must make" talk of last February and went to bonds, where safety has always been found.
The Fed will never allow default. And inflation can't occur while oil scarcity chokes growth. Gold is not a home for scared money.
So bonds again, at the bottom.
ireland credit rating
down graded 5 levels
2 above junk ..
some thing wicked
this way comes