Following two poor bond auctions in the overnight session from Spain and France, things once again looked set to fall apart in both the stock futures and the FX (EURUSD) markets until the latest deus ex appeared after the latest report by international creditors on Greece’s finances recommended paying the next installment of aid to Greece as soon as possible. Naturally: after all such a payment is merely passthru funding which Greece hardly sees one sent of, and the bulk of the capital is immediately recycled to creditors in the form of interest expense and debt maturities. Bloomberg quotes “The Commission services recommend the sixth disbursement to Greece to take place as soon as possible: as soon as the agreed prior actions on fiscal consolidation, privatisation and labour market reform, which were announced by the government, have been legislated,” the report by the so-called troika of officials from the European Central Bank, EU Commission and IMF said. Of course, were the Troika to allow full disbursement without any "stern" warnings over the deterioration in the Greek economy, in which nobody works any more, the Finance Ministry is occupied and a general strike is the "new normal", it would have been beyond farcical. Which is why the Troika noted that the Greek debt ratio, which exceeded 140% of GDP at the end of 2010, will remain “at very high levels for many years,” according to a draft report by the Troika. “If fiscal consolidation and privatization targets are respected, and growth responds to structural reforms, the debt ratio may start declining from 2013 onwards...When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated’." And it will continue deteriorating because Greece now knows too well it can demand anything and everything from Europe and it will get it, since nobody at the Troika can ever refuse to fund the insolvent country's monthly pre-alimony payment.
In the meantime here is some more color on the Spanish and French bond auctions, which both "succeded" yet at the expense of higher interest rates:
Spain sold 3.9 billion euros ($5.4 billion) of bonds but paid high borrowing costs on Thursday after a run of credit-rating downgrades, keeping pressure on euro zone leaders to resolve their differences over how to contain the bloc's debt crisis.
The Treasury sold three bonds to raise a bit more than the midpoint of its 3.25-4.25 billion euro target, two days after Moody's followed the two other three major ratings agencies in downgrading Spain's debt. The two-notch move was largely priced in by markets.
The Treasury sold 1.08 billion euros of the 2017 bond, 1.04 billion euros of the 2019 bond, and 1.78 billion euros of the 2021 bond.
Spain paid an average yield of 4.782 percent on its 2017 bond, last sold in May 2009. On the 2019 issue it was 5.110 percent compared with 4.969 percent when it was last sold on Sept. 15. On the benchmark ten-year bond it was 5.433 percent after 5.896 percent when it was last sold on July 21.
France also returned to markets on Thursday, selling 7.5 billion euros in fixed coupon bonds which were well received despite Moody's warning it could be hit with a negative outlook on its triple A rating. It is due to sell inflation-linked debt later.
And while the MSM would like readers to believe the French auction was a success, the market begs to differ:
Spread of 10-yr French yield over bunds hit another euro-era record after auctions this morning saw a sharp rise in yields on sovereign ratings concerns after Moody’s warnings earlier this week. 10-yr spread over bunds jumps to 118bps, highest since 1992, from 117bps earlier this morning. 10-yr yield +2bps to 3.22% vs 3.20% earlier this morning; hit 3.28% yesterday, highest since Aug. 8. 2-yr yield +3bps to 1.38% from 1.29% earlier today.
To be sure spreads did moderate modestly, after the ECB once again came out and rescued market sentiment by buying more Italian bonds in the open market.
Stick Save #n+1.