Goldman Calls For Bail Out Of Portugal And Ireland So Everyone Can Go Back To Buying Amazon And EbaySubmitted by Tyler Durden on 11/10/2010 10:47 -0400
The more things are bankrupt, the more things stay the same. Evidence #1: Goldman's FUG (Francesco U. Garzarelli) sends a letter to clients in which he implies that Europe should promptly add Portugal and Ireland to its list of wards of the state, so that the Dow can go back to targeting 36,000 on short notice. Apparently this latest European nuisance (punctuated by the Irish Bund spread passing 600 bps) is too much for Goldman strategists, who are perplexed by this stunning inability of the ECB and EMU to grasp that in this market where the only buyer of everything are Central Banks and no market risk is supposed to exist, that Europe still has refused to step up to the plate and debase their currency by a few hundred bips. And after all, the only reason the EURUSD is trading where it is, is so that it has a whole lot of buffer room to fall.
The most amusing email this morning sent around the trading desk community comes from the otherwise perpetually jovial Goldman Europe strategist Erik Nielsen. The email subject is simple enough: "Bad news out of Portugal." And the news is bad.
ECB Purchases Of Sovereign Bonds Surge Tenfold Compared To Prior Week, Hit €1.4 Billion, On Continuing Ireland, Portugal FearsSubmitted by Tyler Durden on 10/04/2010 10:30 -0400
After dropping to a modest €134 million last week, ECB purchases of sovereign debt exploded tenfold in the last ended week to €1.384 billion, confirming that the ECB continues to bid up all Portuguese and Irish bonds available for sale, so the market does not crash. As Reuters notes, this is the highest weekly amount purchase since early July. Once again it is up to the European Fed-equivalent to be the buyer of only resort. And Europe's continued central bank facilitated life support comes on the heels of the latest joke in recession timing: per Dow Jones, the Center for Economic Policy Research Monday said its Euro Area Business Cycle Dating Committee had determined that the currency area's recession began in January 2008 and ended in April 2009, lasting a total of 15 months and reducing gross domestic product by 5.5%. Some recovery there, when half the PIIGS have no access to capital markets, have their Prime Ministers mocked during conference calls, and are fighting with an exchange rate last seen long before Greece, Portugal, Spain and Ireland had to be rescued. We wonder what the CEPR's timing on the end of the European depression will end up being?
Next On The IMF Bailout Wagon: Portugal, As DN Reports Country "May Be Required To Seek IMF Assistance"Submitted by Tyler Durden on 09/17/2010 09:39 -0400
Earlier, we disclosed that concerns that the IMF could be called in shortly to rescue Ireland was the reason for Irish CDS to hit new records. It now turns out that another of the PIIGS may be in need of an imminent IMF rescue, namely, Portugal whose CDS is also surging. According to Diario de Noticias, "Portugal may be required to seek assistance from the International Monetary Fund (IMF) to address the problems of external financing." At least Tim Giethner's little Scam Test diversion bought Europe a quiet summer, full of vacations that would not be bothered with a stark reminder of just how ugly things are about to turn.
Moody's believes that the Portuguese government's financial strength will continue to weaken over the medium term, as evidenced by the recent and ongoing deterioration in the country's debt metrics. "The Portuguese government's debt-to-GDP and debt-to-revenues ratios have risen rapidly over the past two years," says Anthony Thomas, Vice President - Senior Analyst in Moody's Sovereign Risk Group. "This deterioration came about due to the government's anti-crisis measures and the operation of the budget's automatic stabilizers, such as higher unemployment benefits, when the economy went into recession." Looking ahead, Moody's expects the government's debt metrics to continue to deteriorate for at least another two to three years, with the debt-to-GDP and debt-to-revenues ratios eventually approaching 90% and 210%, respectively, before stabilizing once the budget has moved back into a primary surplus position.
Markit reporting that Greek Bund Spreads have suddenly exploded by 65 bps to 776, the highest since May 7, and inches away from the all time record of 900 bps, even as CDS blows out to over 900 bps. The reason quoted is that traders have cited forced index selling and the absence of central bank buying: have banks finally left Greece to dry? Or is it just that Greece is once again caught lying, pardon, having to issue a public retraction: apparently German Handelsblatt ran an interview with Greek finance minister George Papaconstantinou, in which the Greek was "misquoted."According to Market News: "Some of the headlines issued earlier Wednesday on the basis of an interview Greek Finance Minister Giorgos Papaconstantinou gave to German business daily Handelsblatt were based on an erroneous version of the interview placed by the paper on its website. Papaconstantinou did not say in the latest interview with Handelsblatt that Greece would get its deficit-to-GDP ratio below 3% by mid-2012; that and some other headlines were based on an older interview the paper accidentally published. In the actual interview, according to the print version of the newspaper, Papaconstantinou said, "Of course not," when asked if he expects his fiscally troubled country to go bankrupt." The credibility-deficient minister also noted: "The country will “absolutely” endure the crisis without
restructuring its debt, he vowed, since such a step “would exclude Greece for a long time from the financial markets." The punchline was the conclusion that Spain and Portugal are “in a much better position” than Greece. Which bring us to our next point - Portugal's 5 year auction which came in at 4.657%, almost a full percentage point worse compared to the last auction on May 26, which closed at an average yield of 3.70%. Portugal may be better, but at this rate of collapse it means absolutely nothing.
EU Draft Says Spain And Portugal Need Far More Deficit Cuts, Warns Of Debt "Snowball" Effect, Sends Portuguese Spreads WiderSubmitted by Tyler Durden on 06/15/2010 08:05 -0400
A new to be released EU report warns that far more deficit cuts will be required. The report focuses on Spain and Portugal, and especially on the year 2011. According to the report a "snowball" effect may hit Spanish and Portuguese debt, and that the fiscalchallenges for the two countries are "daunting." And as the se kinds of reports tend to be self-fulfilling prophecies, Portuguese bonds have shot lower, and the spread to Bunds is +12.5 bps at the day's wides, or 271 bps. We anticipate many more such reports to come out about every country in Europe that has been forced to establish austerity measures, which basically means every country in Europe. And somehow the force is still strong with Keynesianism in the US, which is still deluding itself into believing it will be able to squeak through the cracks with no deficit cuts.
Portuguese National Statistics Institute reported yesterday that the average debt-to-equity percentage of Portuguese companies has reached a staggering 140%. In the economy which is now perceived as the next problem within EMU, such high average percentage of enterprise debt will not only have a big impact on Portuguese economy, but also on EMU in general.
"We expect to conclude our review in the coming four weeks. The migration will most likely be substantial, probably within the Baa range; but an adjustment to below investment grade is also possible. This will depend on developments in the Greek economy once the fog of financial panic, support-mobilisation and street demonstrations dissipates. The country’s debt is large but not unbearable; however, the required adjustment is obviously very painful, and short-term economic prospects are clearly dismal – though not out of proportion with developments already seen in several European economies last year. Once we have concluded our review, we will publish a detailed explanation of our rationale for re-positioning the rating." Moody's
As Spain Prepares New Debt Issuance, Euro Tumbles, Greek 3 Years Hit 15%, And Portugal CDS Blows OutSubmitted by Tyler Durden on 05/06/2010 04:27 -0400
Today Spain will test the capital markets with a downsized E2-3 billion 5 year issue (from E4.5 billion) carrying a 3% coupon. The yield on the note is expected to come higher than existing comparable maturities which are trading at 3.3%, thus pricing will likely be in north of 3.5%. At the end of March, Greece managed to raise 5 year bonds at 2.8%: there are no concerns that Greece will be able to repeat that result, much to the negative P&L of all those who bought into the last bond issue. "Spain is firmly in the eye of the storm, and the Spanish treasury cannot allow this sale to fail," said Jose Garcia Zarate at consultancy 4Cast. Yet as we showed yesterday, traders are not so worried about Spain, whom they have pretty much written off now, as the UK, France and Germany. In the meantime, the PIIGS fire is raging: Greek 3 Years just hit 15%, as its CDS trades 30 bps wider since the NY close, now at 877 bps. And the eye of the hurricane is moving west: Portugal CDS hit another high of 456 bps today, implying a 33% chance of a sovereign default. Lastly, the euro is plunging and after hitting an overnight support in the low 1.27 area, has bounced slightly. Spain will need all the help it can get. In the very least, today will be a test whether the recent rumor spread by a prominent nationalized and GGB heavy UK bank, that Spain has requested a E280 billion rescue package, was true or not.
The bond market in Greece and Portugal is now rumored to now be shut down for the day due to total chaos, not to mention potential imminent revolution in Athens. We expect the US to "decouple."
Today's rating action reflects the recent deterioration of Portugal's public finances as well as the economy's long-term growth challenges. "The review for possible downgrade will consider a repositioning of Portugal's ratings to reflect the potentially lasting deterioration in the government's debt metrics," says Anthony Thomas, Vice President-Senior Analyst in Moody's Sovereign Risk Group. "In the context of a small and slow-growing economy, such debt metrics may no longer be consistent with a Aa2 rating."
The weakening of Portugal's public finance position reflects the failure of successive administrations to consistently limit government budget deficits since Portugal joined the eurozone at its inception. "More recently, however, the government's has reiterated its objective to achieve or even surpass the deficit reduction targets published in its latest Stability and Growth Programme," says Mr. Thomas. "The well-structured debt profile means that refinancing risks are modest."
Greek 2 Year Yields 20 Percent, Italy Up 6 Basis Points, Portugal Up 7 Basis Points, Spain Up 27 Basis PointsSubmitted by George Washington on 04/28/2010 11:52 -0400
Not just Greece ...
S&P just cut its long-term ratings on Portugal to 'A-' from 'A+' and the short-term ratings to 'A-2' from 'A-1'. Euro plunges on the news even as market is aggressively trying to rerisk during the Goldman hearing.
Greece 5y CDS now at a meaningless 762bps, which is the highest non-upfront CDS spread for any sovereign. This alone should be enough for another monster day in the decoupled algo-driven US markets. And Portugal is now where Greece was just a few weeks ago: its own CDS just hit 350 bps (40 wider), as its 10 spread widens by 17 bps to 235 bps. While the Greek negative basis is still about 250 bps, Portugal is still less pronounced. We expect the Portuguese basis to hit negative territory soon. According to CMA the biggest wideners are all Spanishand Portuguese entities: Enel SpA at 137.07(+16.04), Banca Monte dei Paschi di Siena SpA (SUB) at 215.22 (+23.25), Banco Popolare SC at 164.46 (+15.67), Banca Monte dei Paschi di Siena SpA at 122.64 (+10.82). As for Greece, it's too late: Germany says country may have to leave the Eurozone, as we suspected was Germany's intention all along.