As European Spreads Blow Out Post The Irish Downgrade, One Bank Continues To Use the Fed's FX Swap Line
As we earlier predicted, the S&P downgrade of Ireland has thrown all of Europe a curve ball: CDS spreads are wider across the board. Also in cash land, the Irish-Bund spread hits the widest since early May at 335 bps (+17), and its CDS leaking to 315 (+8 bps) while Portugal is slowly starting to catch up, hitting 316 bps in spread to Bunds. Portugal also auctioned off €1.3 billion in bonds maturing 2016 and 2020. The auctions were disappointing with yields continuing to leak wider:the 4.2% €0.628 bn due 2016 closed at 4.371% compared to 4.128% previously, and a 2.1 bid to cover, in line with the previous 2.0, while the 4.8% €0.672 bn due 2020 closed at 5.312% and a 1.8 bid to cover, also closing wider than the previous of 5.225%. Yet the most Yet the most underreproted, and most troubling news, continues to be that one solitary bank persists in taking advantage of the Fed's FX swap line: today it bid for $40 million in a 1.18%-fixed rate USD-based tender. This is an increase from last week's $35 million, meaning that while most banks are still finding themselves in a EUR shortage (3M Euribor was once again wider), one bank has gone completely against the grain and will not benefit from the traditional ECB liquidity boosting measures.