Old and still drinking water and eating dry white toast.
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Sovereign Credit Risk Declines Most on Record on Debt Buybacks
Credit-default swaps on Greece fell 68.5 basis points this week to 841.5 basis points, the lowest level since Nov. 1, following a decline of 137.75 basis points in the previous period, CMA prices show. Contracts tied to Spanish debt dropped 96 basis points over the past two weeks to 261.5 basis points, while swaps on Italy fell 70.75 to 182.
Analysis: Emerging markets? So last year, some investors say
Equity investors take note: the emerging markets bet which paid off so handsomely last year may have run its course for the time being.
For the year ahead, exposure to surprisingly strong domestic European growth may prove more lucrative than investing in markets such as China, still fast growing but which could be affected negatively by factors such as rising inflation.
World Economic Forum theme: 'Shared Norms for New Reality'
A major focus of this year's meeting will be how to deal with global risks, develop risk mitigation strategies and capture related opportunities. The World Economic Forum will present its Risk Response Network at the Annual Meeting, which will serve as a preparatory, analytical and highly practical framework for the global community in the service of improving global risk management. The Risk Response Network is a platform designed to better understand, manage and respond to complex, interdependent risk.
One of my long-term 401K core stocks, flipped it a few times to build a 1000 share base....watching GMR for a entry point.
Greek Bondholders Unlikely to Get Repaid in Full, Goldman Says
Jan. 20 (Bloomberg) -- Greek bondholders are unlikely to get all their money back on schedule unless borrowing costs fall, said Andrew Wilson, head of fixed-income at Goldman Sachs Group Inc.
“Unless we have a dramatic change in the interest-rate structure, particularly for a country like Greece, I think some form of restructuring is a relatively high-probability event” after 2011, Wilson said in Bloomberg Television’s “On the Move with Francine Lacqua.”
Greece spawned the euro-region sovereign debt crisis a year ago when investors became concerned spending cuts wouldn’t be enough to bring down the country’s budget deficit, which was more than three times the limit laid down by the European Union. Greece’s 110 billion-euro ($149 billion) bailout in May failed to stop its bond yields surging, infecting other so-called peripheral nations including Spain and Italy.
The crisis in the euro region’s most indebted nations “gives a lot of investors jitters,” said London-based Wilson, who joined Goldman Sachs in 1995 and was made a partner four years ago.
Bringing funding costs down “is either happening through time and the fiscal austerity -- markets are not being very patient around that -- or we get some direct intervention,” he said. “That’s what we’re waiting for: is the European Central Bank going to come up with something?”
The Frankfurt-based ECB is supporting nations including Greece, Portugal and Ireland by buying their bonds, while European governments are considering reducing the interest rates on rescue loans in exchange for new guarantees.
Greek Buybacks
Germany is meanwhile weighing a plan to help Greece reduce its debt burden by letting it buy back bonds using funds from the 440 billion-euro European Financial Stability Facility, Die Zeit reported. Officials of both countries denied a restructuring of Greek debt was being discussed.
“It’s the uncertainty, really, that’s creating the problems at the moment,” Wilson said. “It feels a bit like a standoff here between the authorities, be it the ECB or European governments, and investors, saying, ‘well, are we willing to lend money to countries like Portugal and Spain?’”
Investors are demanding 8.39 percentage points to own Greek 10-year government bonds rather than benchmark German notes, compared with as low as 2.15 percentage points in January 2010, according to data compiled by Bloomberg. The yield on Portugal’s 10-year debt has hovered above 7 percent since November, while Spain’s bond yields are the highest in 11 years.
‘Can’t Sustain 7%’
“You can’t sustain 7 percent interest rates” with peripheral nations’ budget deficits as high as they are, said Wilson. Still, measures including the EU rescue fund “mean countries like Greece don’t need to come to the market” to sell new bonds, he said.
Greek Prime Minister George Papandreou’s financial lifeline forces the government to reduce its deficit to below the EU’s limit of 3 percent of gross domestic product a year after that. The country’s budget gap was 9.4 percent in 2010, according to a government estimate.
Greece lost its last investment-grade ranking on Jan. 14 when Fitch Ratings cut it to junk because of its debt burden. The country had to pay out a third of its tax take in the first half of last year just to service the interest on its debt, according to data from Eurostat, the EU’s statistics office.
“There’s a lot of worry around the peripheral European nations, not just Spain, but Portugal, Ireland,” said Wilson. “All of those countries are under enormous pressure.”
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For Greece, Buyback Of Bonds Is Floated
Analysts said on Wednesday that having Greece buy back its own devalued bonds could be an important step toward solving Europe’s sovereign debt crisis.
A German government spokesman denied reports that such a plan was in the works. But if Greece bought back the bonds with help from other euro zone countries, the country would not have to repay the full amount of the debt when the bonds reached maturity.
“It’s the first time we’ve got an indication Europe is starting to think outside of the box,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland. “Ultimately, it’s the return to some kind of stable debt path that will provide the biggest turnaround in confidence,” he said.
Talk of a restructuring has been taboo among European leaders, who fear that a default by a euro country could permanently undermine the credibility of the common currency.
The latest speculation about a Greek restructuring was prompted by a report in the national weekly Die Zeit on Wednesday, as well as statements by two ministers of the Greek government who said Tuesday that extending debt repayments would be a good idea.
The Greek government denied it was in talks with private creditors to restructure its debt, Bloomberg News reported. Greek bonds already trade on open markets at a steep discount to their face value.
A spokesman for Wolfgang Schäuble, the German finance minister, said “there is nothing to” the report in Die Zeit. “We’re not working on a restructuring of Greek debt,” said the spokesman, who was not authorized to be quoted by name.
Still, analysts remained convinced that European policy makers were indeed discussing ways to reduce Greece’s overall debt.
Economists have long doubted that Greece will ever be able to repay all the money it has borrowed, especially when its economy is shrinking and the interest rate the country must pay to roll over old debt is skyrocketing.
Properly handled, a buyback could bring Greek debt down to a manageable level while avoiding the stigma of default. Unlike a default or mandatory restructuring, a buyback would be optional. Investors could still choose to hang on to their debt until it matured.
Initial market reaction was negative, however. The yield, or effective interest rate, on Greek 10-year bonds rose seven basis points to 11.36 percent, according to Bloomberg data. A basis point is a hundredth of a percentage point.
European leaders are under intense pressure to put an end to a year of market turmoil caused by investor doubts about the solvency of countries including Greece, Ireland and Portugal. Policy makers have been discussing ways to strengthen the European Financial Stability Facility, or E.F.S.F., which is the centerpiece of a 750 billion-euro ($1 trillion) rescue package for distressed euro zone countries.
So far, the fund has not impressed investors enough to calm bond markets.
Erik F. Nielsen, chief European economist at Goldman Sachs, speculated that the fund could buy discounted Greek bonds on the open market, then later resell the bonds to Greece. The fund would attach conditions to ensure that Greece continued to reform its economy and cut government spending.
“The possibility for the E.F.S.F. to start buying debt in the secondary market is indeed on the agenda,” Mr. Nielsen said in a note Wednesday.
“There are lots of remaining outstanding issues to be sorted,” he added, “but I would be surprised if it’s not included when the full package is revealed, probably in March.”
There are potential drawbacks to such a plan. It would shift Greece’s liabilities from private investors to other euro zone countries, which would then have to ensure that Greece followed through on reforms to make its economy more competitive.
Mr. Cailloux of R.B.S. said that such a plan would not be a solution for Ireland or other overly indebted countries because their bonds did not yet trade at a big enough markdown from the face value.
The plan might not work for Greece, either, if prices for its bonds rose or if there were not enough bondholders willing to sell. Still, Mr. Cailloux said, “It’s one of the more appealing proposals.” The idea shows “we’ve got a more open-minded Europe tackling the crisis.”
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The Sovereign CDS contract is triggered when a credit event occurs.
There are three credit events for sovereign CDS, and they differ from corporate CDS in that "bankruptcy" is not one of them (that's a concept that only legally applies to a corporation).
The credit events are:
1) Failure to pay a coupon or principal on a bond or loan.
2) Moratorium - the announcement of the intention to suspend payments of debt obligations.
3) Restructuring - changing the terms of a debt obligation in a way that disadvantages investors, for example by extending the maturity date, cutting the coupon, or changing the currency of denomination to that of a non-G7 or AAA rated OECD member.
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The problem will not be solved until the naked sovereign CDS positions are banned.
All my US banks stock took a today hit except my little grrek bank.
Shifting from a 100 year floodplain to a 500 year floodplain will increase the number of homeowners that will be required to pay for flood insurance on their homes.
FEMA has adopted the 100-year floodplain as the base flood standard for NFIP as that agency is mainly concerned with construction which could potentially harm a 100-year floodplain, rather than a 500-year floodplain, which is an area that has a 0.2 percent chance of a flood in a year.
Should we trust a report written by a person named McNutt?
2011: An Anticipated Upswing
A recent report released by the United Nations Conference on Trade and Development (UNCTAD), entitled Review of Maritime Transport 2010, has revealed that the previous years of investments and programming by Greek companies has, as expected, started bearing fruit. 2011 is predicted to be a more dynamic year, and this will greatly benefit the ailing Greek economy. More specifically, the UNCTAD report estimated that the total capacity of the Greek-owned fleet has reached 3,150 vessels, totalling 186,095 million dwt.
In mid-2010, some 15.96% of the global merchant fleet was recorded as being owned by Greeks, a considerable increase over the previous years characterized by global recession. Now, however, a new global upturn has begun- one that is likely to fill the coffers of the trading and transport companies.
After Greece, Japan follows as the second major global shipping power, with China in third place and Germany fourth. It is quite interesting that Greece thus figures higher than these superpowers of industry, trade and export, despite having a population of only 11.3 million people and a limited trade presence, even in the peripheries of Europe.
China is the key factor that explains the virility of the global shipping trade even in times of recession. For example, in 2009, Western Europe witnessed a 38.2% drop in imports of iron ore, whereas China saw a 38.9% increase over the same period. It thus appears that the world was saved from a 1931-style depression at the last moment, due to the dynamics of the Chinese economy along with those of India, Brazil and other emerging economic players.
Greek shipping companies have operated in such countries for decades, and have cleverly made use of their traditional advantages soon enough so as to avoid the recession. It is likely that this saved the Greek economy from collapse in 2010, when the country accepted IMF patronage after the series of public blunders and governmental mismanagement that brought Athens to such a delicate situation.
In 2010, according to research conducted by the ?. Cotzias Shipping Consultants company, Greek companies invested $9.3 billion, and bought 325 vessels, having a total capacity of 22.8 million dwt. Of those ships, 82 were oil tankers (most of them of the VLCC type), a move that signals confidence that the oil trade will flourish in the coming years and in parallel that the oil prices will inevitably increase and break the $100 barrier.
In total in 2010, ship transactions totalled $30.9 billion, meaning that Greek ship-owners bought almost 33% of the available ships for sale, with the Chinese having a 9% share and the Japanese a 16% share. Therefore, Greeks bought more ships in terms of value than both the Chinese and Japanese companies combined during 2010- a clear signal of overall confidence from Greek ship-owners that global trade is soon to boom, and that they should therefore seek to acquire vessels in order to meet demand before their gigantic competitors.
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Investors Awaiting Europe's Next Move .
NEW YORK—If there's one event to watch to get an idea of how the foreign-exchange markets will perform this week, it's the euro-zone finance ministers' meeting scheduled for Tuesday, analysts said.
Investors are hoping the zone's Economic and Financial Affairs Council will announce further measures to give the currency union's member states more of a financial cushion in the sovereign-debt crisis that continues to plague the 17-nation bloc.
"There's some scope for disappointment in the market if we don't get progress toward a larger size or broader mandate" for the European Financial Stability Facility, said foreign-exchange strategist Daniel Katzive at Credit Suisse in New York. He said that if there isn't a definitive statement that the ministers will expand the fund, which has backstopped struggling euro-zone countries during the crisis, the euro could move lower against major currencies and reverse last week's gains.
Nick Bennenbroek, head of currency strategy at Wells Fargo in New York, said, "We'll see a little more dollar weakness and euro strength." He cited last week's positive debt auctions in Europe as well as expectations for the finance ministers' meeting. He said Germany's Ifo business-confidence index figures, which are due to be released Friday, are expected to provide a window into Europe's largest and strongest economy, giving market participants more data to help evaluate the euro.
The euro could also benefit from recent indications that China and Japan will buy sovereign bonds from troubled euro-zone countries, said Hidetoshi Yanagihara, a currency strategist at Mizuho Corporate Bank in New York.
Investors will also be watching the Bank of Canada on Tuesday when it's scheduled to announce its latest decision on interest-rate moves. The Canadian dollar is hovering near parity with its U.S. counterpart.
"The risk is that they highlight the risks to the economy from the strong currency and create the impression that the strength in the currency has reduced the scope for policy tightening," said Credit Suisse's Mr. Katzive, who is bullish on the Canadian dollar. He thinks the market would likely take any softening of the Canadian currency as an opportunity to buy more of it.
There's also the highly anticipated state visit of China's President Hu Jintao in Washington on Wednesday. Market participants will be watching the carefully managed yuan exchange rate, which is near 6.60 yuan per U.S. dollar. The yuan's level has been a point of contention between the two countries as some American politicians and executives have called for China to let its currency appreciate.
Late Friday in New York, the euro was at $1.3375, up from $1.3351 late Thursday. The dollar was at 82.97 yen from 82.82 yen, while the euro was at 110.98 yen from 110.57 yen. The pound was at $1.5874 from $1.5825. The dollar was at 0.9643 Swiss francs from 0.9651 francs.
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Euro zone finance ministers to discuss changes to rescue fund
(Reuters) - Euro zone finance ministers will discuss Monday an increase in the effective lending capacity of the euro zone rescue fund, to draw a line under the sovereign debt crisis before more countries need help.
The rescue fund, the European Financial Stability Facility (EFSF), can borrow money on the market with euro zone government guarantees of up to 440 billion euros ($588 billion).
But because it wants to have a triple A credit rating, the effective amount it can lend to countries in need is only around 250 billion. A potential bid for help from Portugal and Spain would stretch its resources to the limit.
The European Commission and the European Central Bank called last week for boosting the effective capacity of the EFSF as well as expanding its scope of operations. Germany, the biggest euro zone economy, is key to any agreement on changes.
German Finance Minister Wolfgang Schaeuble Germany, signaled readiness to raise the effective capacity of the EFSF.
"We have to and will solve this problem," Schaeuble was cited as saying in the Frankfurter Allgemeine Sonntagszeitung. Also France appeared open to talks on an increase in the fund's lending capacity.
But senior European sources told Reuters the sense of urgency in Berlin for boosting the fund had diminished after successful bond auctions last week in Spain and Portugal, the two countries seen most at risk of a bailout following rescues of Greece and Ireland last year.
Instead Germany is pushing for broader anti-crisis measures to be agreed at a summit of European Union leaders in March.
German Chancellor Angela Merkel said Saturday any further measures to stabilize the euro could only be introduced within a complete strategic package also aiming for stronger economic coordination.
She said new measures to tackle the euro zone debt crisis should be well thought-out and "you cannot simply raise another particular aspect each day."
"If the discussion is about a further package of measures, it is above all important that we develop a complete strategy that must absolutely include closer economic coordination," Merkel told a news conference in Mainz after a meeting with other senior members of her ruling Christian Democrats.
Among the contentious issues, officials say, are France's wish to let the EFSF buy the bonds of vulnerable euro members which Germany does not want, and Berlin's insistence that other members of the currency bloc be forced to introduce legislation similar to the "debt brake" rule it adopted in 2009.
Germany is also against lowering the punitive interest rate the EFSF charges states for its loans, a step other euro zone members believe is necessary to allow struggling economies in the bloc to reduce their debt mountains.
If the margin, now 300 basis points, were to be lowered for the EFSF, it would most likely also fall for loans already agreed on for Ireland, as well as for Greece.
"The principle is to have similar conditions across instruments and countries," a euro zone source said.
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Europe’s Challenge: Fostering Growth Amid Austerity
PARIS — Economic growth is an elixir for struggling economies, but in Europe it’s likely to come slowly to the countries that need it most.
The recovery that has flickered to life in the United States and much of Northern Europe is missing in euro zone nations straining under huge debt and harsh austerity measures — places like Greece, Ireland and Portugal that have imposed large spending cuts and tax increases.
Those measures may eventually lead to healthier economies, but the process will take years, economists and analysts say. In the meantime, the drag on growth is increasing pressure on the euro, and tethering competitive countries like Germany, a major growth engine, to the faltering fortunes of the European Union’s weakest members.
Countries using the euro will grow an average of 1.5 percent this year, according to the International Monetary Fund, less than the 2.3 percent growth it predicted for the United States. While some of that difference reflects slower population growth in Europe, it points to the further relative decline of Europe’s weight in the global economy.
That forecast was made before Congress passed a $858 billion package of tax cuts and incentives in December, which led some economists to raise their growth predictions for the American economy to as high as 4 percent. Europe has no similar stimulus to help stoke a stronger recovery.
The longer-term picture is little better. By 2015, the I.M.F. said, growth in the euro area will come in at just 1.7 percent.
To many analysts, the numbers add up to a long and painful journey back to prosperity.
“This is the most brutal slimming exercise you can imagine, without the help of an exchange rate devaluation,” said Thomas Mayer, chief economist of Deutsche Bank. “It will take time and it will create tremendous economic hardship in these countries.”
To be sure, there are some positive signs. None of Europe’s biggest economies are on the brink of recession: Germany expanded a healthy 3.6 percent last year, bolstering growth in the euro area. Portugal and Spain, where growth is weak, conducted better-than-expected debt auctions last week.
But analysts were quick to point out that lenders demanded lofty interest rates for the bonds, reflecting worries that Portugal and Spain will eventually need a bailout and signaling skepticism among the markets that Europe can contain its crisis.
European finance ministers will meet in Brussels Monday and Tuesday to discuss increasing Europe’s bailout fund and institutional reforms, but on a broader level the debate will be aimed at protecting the single currency. The growing economic divide in Europe means the euro’s survival in its current form can no longer be taken for granted if policy makers fail to come up with solutions to the Continent’s underlying problems.
While mild growth is expected to return to the likes of Ireland and Portugal within a year, those forecasts have already been tempered.
Exports are a big driver of the Irish economy, and are now the only bright spot after a contraction of its bloated construction sector. But sharp government spending cuts threaten to overshadow any export recovery this year. The I.M.F. now expects the economy to grow just 0.9 percent, down from a 2.3 percent forecast just a few months ago.
Portugal’s problems are different. Unlike Ireland, its banks are not troubled. But the government has high debts, and what feeble growth it has will continue to weaken as the government curbs investments designed to stoke export growth, while wage cuts and tax increases hit the economy.
Worse, Germany’s economy will start to be buffeted by its neighbors’ problems: its growth is expected to slow considerably as the government spends more to keep the euro together. With less cash, its troubled neighbors are also curbing their purchases of German and other imports.
Most of Germany’s growth last year came in spring and summer. Since then, it has tapered off, and it is likely to cool to 2 percent this year before sliding to 1.3 percent in 2015, according to the I.M.F.
As recently as 2005, Germany was considered “the sick man of Europe.” But it sharply lifted its competitiveness after spending nearly a decade fine-tuning its economy to turn it into a manufacturing powerhouse. It deregulated labor markets, adjusted its tax code, and kept a lid on wages — measures similar to those being adopted in places like Ireland.
“It was a time that people don’t remember too fondly,” said Mr. Mayer of Deutsche Bank. “But competiveness came back. And that is the adjustment path that the others now have in front of them.”
Still, not every country can reinvent itself as a manufacturing giant, and those on Europe’s southern rim face a challenge in breathing new life into their economies. Greece, for example, is trying to turn itself into a “green economy” focused on renewable energy development, a plan the government hopes will create more than 200,000 jobs by 2015. But politicians face a struggle finding the billions needed to turn its dreams into a reality.
The region’s waning dynamism is raising alarms in other corners. China recently renewed pledges to help Europe — which recently overtook the United States as China’s largest trading partner — recover from its sovereign debt crisis. It has also used the crisis as an opportunity to secure major deals in troubled countries, like taking a 35-year lease on Greece’s port of Piraeus, one of the major cargo gateways to Europe.
Europe is a huge consumer of imported goods, especially from less expensive emerging markets, and a decline in demand would ripple through other economies.
Last week, Japan, whose own economic weakness has stood out in contrast to China’s ascent, surprised investors by announcing it would also step in to bolster Europe. A sharper European downturn could hold back Japan’s own recovery by hurting its exports to the region, its third-biggest export market after China and the United States.
Europe’s economy could be sent reeling again if a new crisis engulfs its banks. Ireland needed a bailout mainly because the government had agreed to backstop its zombie banks, whose financial precariousness overwhelmed the national Treasury. Many investors worry that Spain’s banks are also severely exposed to a collapse in the property sector that will require Madrid to ask for a bailout as well.
“Ireland was a good country gone bad because of its banking sector,” said Carl B. Weinberg, chief economist at High Frequency Economics. “That’s the risk I’m worried about in the rest of euroland.”
What is certain is that Europe’s austerity programs will prove a slow grind on economies and will come with a significant human toll, which will worsen before it improves.
Governments must get their costs down by reducing wages, compensation and income, while cutting spending and raising taxes.
Already, the crisis has reinforced pressure on politicians to pull back on Europe’s hallowed social safety nets, which have become cumbersome and even more financially unsustainable as the economic downturn and deteriorating demographics drain funding.
“There is already, and there is going to be a very negative impact on the most vulnerable part of the population,” said Thomas Klau, a senior political analyst at the European Council on Foreign Relations. “How this will play out over the next few years remains to be seen.”
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Europe’s Junk Proves Safer Than Risky Bank Debt: Credit Markets
Jan. 17 (Bloomberg) -- Investors are judging junk bonds sold by companies in Europe to be safer than banks’ riskiest debt for the first time on concern lenders may lose money amid the region’s sovereign deficit crisis.
The extra yield buyers demand to own high-yield non- financial notes instead of government securities fell below that on bank subordinated debt on Jan. 6, and is now 29 basis points lower, according to Bank of America Merrill Lynch index data. Before November, speculative-grade bond spreads had never been within 100 basis points of those on bank notes, which on average are rated eight steps higher.
The Basel Committee on Banking Supervision announced rules on Jan. 13 that would make banks’ subordinated bonds more likely to absorb losses, aiming to protect taxpayers and help lenders avoid collapse. The lowest-rated non-financial companies are proving more immune to concern stemming from euro-region nations’ mounting debt that has roiled global markets for a year.
“High-yield is a great story,” said Lucette Yvernault, a money manager at Schroders Investment Management Ltd. in London, which oversees 181.5 billion pounds ($288 billion). “Banks are still disturbed by the sovereign uneasiness on one hand and the lack of regulatory support on the other.”
Relative Yields
Relative yields on speculative-grade European company debt shrank 51 basis points to a three-year low of 437 since Oct. 31, a month before Ireland asked for an 85 billion-euro bailout, according to Bank of America Merrill Lynch’s Euro Non-Financial High-Yield Constrained Index. Subordinated bank bond spreads widened 125 basis points in the same period to 466, approaching the highest since July, the EMU Financial Corporate Index, Sub- Type shows.
Debt in Bank of America Merrill Lynch’s corporate junk bond index has an average rating of B1 from Moody’s Investors Service, lower than the A2 investment grade for banks.
Elsewhere in credit markets, spreads on global company bonds narrowed for a second week as debt sales surged. The cost of protecting corporate securities from default in the U.S. declined the most in 10 weeks, and leveraged loan prices rose to the highest in more than three years.
Yields on company debt from the U.S. to Europe and Asia narrowed 1 basis point relative to government bonds last week to 166 basis points, or 1.66 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Spreads, which have tightened 3 basis points this month, are down from 177 on Nov. 30.
Rising Sales
Yields jumped to an average 3.93 percent from 3.89 percent. The Barclays Capital Global Aggregate Corporate Index of bonds lost 0.3 percent this month.
Corporate bond sales worldwide jumped to $108.6 billion for the week, from $82.5 billion the week before, according to data compiled by Bloomberg. New York-based JPMorgan Chase & Co.’s $3.25 billion offering included $1.25 billion of 2.05 percent notes that yield 110 basis points more than similar-maturity Treasuries. The second-biggest U.S. bank by assets paid a spread of 100 basis points on its $550 million of 1.65 percent, three- year debt sold on Sept. 27, Bloomberg data show.
Credit-default swaps on the Markit CDX North America Investment Grade Index fell 5.2 basis points to 83.3, according to Markit Group Ltd. That’s the biggest decline since the index dropped 8.8 basis points in the week ended Nov. 5. The Markit iTraxx Europe Index of 125 investment-grade companies fell 8.3 basis points to 104, the biggest slip in four months.
Asian Swaps
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 2.5 basis points to 107 as of 8:28 a.m. in Singapore today, Royal Bank of Scotland Group Plc prices show. The Markit iTraxx Japan index declined 1 basis point to 110.5 at 9:15 a.m. in Tokyo, according to Citigroup Inc. The risk benchmark is heading for its first decline since Jan. 4, CMA prices in New York show.
Credit-default swaps typically fall as investor confidence improves and rise as it deteriorates. They pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, and a basis point equals $1,000 annually on a contract protecting $10 million of debt.
The Standard & Poor’s/LSTA US Leveraged Loan 100 Index rose 1.54 cent for the week to 95.22 cents on the dollar, the highest since Nov. 19, 2007. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has gained 1.59 percent this month. Speculative-grade debt is rated less than Baa3 by Moody’s and BBB- by Standard & Poor’s.
Relative yields in emerging markets fell for a second week, shrinking 4 basis points to 235, according to JPMorgan index data. Over the past three months the index ranged from a high of 279 on Nov. 30 to as low as 217 on Jan. 5.
Bank Losses
Regulators and lawmakers in Europe announced measures this year aimed at preventing another credit crisis that may increase the risk of bank losses. Lenders in the region have already lost or written down $585.8 billion since 2007, according to Bloomberg data.
The Basel committee decided in 2010 to restrict the securities that banks could count toward the capital they’re required to hold as a buffer against losses. Last week the regulators said some subordinated bonds should include triggers forcing lenders to convert them into stock or write them off to avert collapse. That followed a European Union proposal on Jan. 11 that senior bank note holders should share the burden of future government bailouts.
Concern losses will mount is causing European bank credit quality to deteriorate while ratings on speculative-grade corporate borrowers are rising at the fastest pace in at least a decade. S&P lifted the ratings of 56 junk European companies last year while cutting 47, Bloomberg data show. The New York- based ratings firm upgraded 30 financial companies and cut 92.
‘Significantly Decoupled’
Financial credit has “significantly decoupled” from the rest of the corporate bond market since November because of higher expected losses and increased volatility amid the sovereign crisis, Morgan Stanley strategists led by Andrew Sheets said in a Jan. 14 report.
Investor demand for European speculative-grade company debt may cause spreads to tighten to 400 basis points this year, JPMorgan strategists led by Stephen Dulake in London wrote in a Jan. 7 report. Issuance may rise to a record 50 billion euros, surpassing last year’s all-time high of 46.7 billion euros, the strategists wrote.
“Investors will continue to chase yield, and high-yield bonds are the only asset class offering that,” said Alexandre Caminade, who manages the equivalent of about $800 million of high-yield debt at AGF Asset Management in Paris. “We’re much less confident about financials than we are about non-financials. It’s very difficult to understand the risks attached.”
Sharing the Pain
European junk bonds may also suffer from the problems faced by banks because they’ll raise funding costs for speculative- grade borrowers, according to Goldman Sachs Group Inc. Government budget constraints will add to the pain felt by junk- rated companies by diminishing public support, Goldman strategists led by Charles Himmelberg and Alberto Gallo wrote in a Jan. 14 report.
“The reliance on bank lending, coupled with persistent bank spread volatility, could eventually spill over in higher funding costs for European borrowers, penalizing highly levered, low-rated firms,” they said in the report. “This is particularly true for the peripheral countries; the same ones where companies rely the most on bank funding.”
Governments and banks in Europe need to refinance about 1 trillion euros of debt in the first half of this year, according to BNP Paribas SA. In the corporate sector, by contrast, many of “the high-yield names that needed to refinance have done so,” said AGF Asset Management’s Caminade.
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Irish lenders besiege central bank for emergency loans
Irish banks are running out of collateral they can use to borrow from the European Central Bank, turning instead for emergency support from their own central bank on an unprecedented scale.
The latest data shows that Anglo Irish Bank and other lenders had borrowed €51bn (£43bn) from the Irish central bank by the end of December, under an obscure progamme listed in the balance sheet as "other assets".
This comes on top of €132bn in loans from the ECB itself, the figure normally tracked by analysts and itself 24pc of all ECB lending.
"This is a horror story: it shows the cataclysmic condition of the Irish banking system," said Tim Congdon from International Monetary Research. "The banks have borrowed €183bn in total, or 110pc of Irish GDP. They have burned through all their capital and a lot of their deposits as well. This is going to end up on the national debt".
The actions of the Irish central bank are authorised by Frankfurt, but fall into a grey area of monetary policy since they appear to involve creation of money outside the normal control of the ECB's governing council.
The use of Ireland's emergency liquidity assistance programme (ELA) raises further questions since the quality of collateral is unacceptable for normal ECB operations. The volume of borrowing has begun to level off after a surge in November.
Separately, the Spanish media reported that a mission from the International Monetary Fund was arriving in Spain this week to analyse the country's debt sustainability and may discuss a `flexible credit line', akin to precautionary overdraft facilities offered to Mexico and Poland.
The IMF's flexible credits are designed to "encourage countries to ask for assistance before they face a full blown crisis". They are not the same as bail-out, and are only avaible to "very strong perfomers" facing "tough times" because of temporary funding pressures. They entail no stigma, and do not come with strings attached.
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What the company did on the three year forecast was open up the margin of error (plus or minus 2000 points) to accomodate everything and anything in the data stream.
The proper way would be to draw the midpoint guess with the overlay of the upper and lower error bounds....but then it would not be worth the $29.95 per year.
Euro Dollar Rally Loses Momentum
<<<....A strong EURO helps NBG balance sheet.....>>>
LONDON, Jan 14 (MNI) - Euro-dollar extended its recent rally to $1.3458, as early Europe targeted and triggered stops through $1.3410/40, but the upside momentum quickly faded and allowed the rate to ease back to $1.3350. Euro demand was perceived to be driven by yield plays, boosted by Thursday's ECB Trichet press conference comments that were viewed as more hawkish than expected.
EURO SUMMARY: Opened in early Europe around $1.3343
$1.3383. The move up was seen to be driven by yield, with Thursday's ECB Trichet presser perceived to be more hawkish than expected and boosting eurozone yield.
Euro-dollar had been edging higher into late NY trade, with early Asia taking it up to mark highs at $1.3365 before easing as Tokyo sold euro-yen.
The rate eased to lows of $1.3322 before fresh demand emerged. The rate edged higher, stepping its way back up to $1.3350, with stronger demand into early Europe taking it up to retest the early Asia high at $1.3365.
German demand emerged into early Europe which took the rate through a reported barrier at $1.3400, with momentum able to take the rate through $1.3410 where stops through to $1.3440 extended the move through the next barrier at $1.3450 and on to $1.3458.
The rally quickly lost momentum, as analysts began to warn of over enthusiasm, with the corrective pullback triggering stops through $1.3375 and $1.3360 before finding support around $1.3350/45.
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I need to review the charts. I am thinking of signing up for the yearly service.
The subscription is for extended forecasts which show you the future out to 36 months.
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The curiosities of euro zone CDS and pricing insolvency
One of the most striking aspects of the whole euro zone crisis has been the slow process by which credit and interest rate pricing converged. Say what? In short, in the early 2010 days of the crisis the CDS market began pricing government bonds as credit risk in a way the individual government bond markets were slow to recognize and appreciate. The real flare-up in the crisis happened when those two risks — credit and interest rate — converged.
New European Banking Regulator Will Conduct a Stress Test on Lenders
PARIS — The European banking regulator said on Thursday that it would conduct another round of stress tests on lenders this spring, a move that investors hope will offer more clarity on the health of balance sheets than previous exercises.
Also Thursday, a panel of international regulators said that it would require a broader range of securities holders to assume some of the cost if a bank failed.
The European stress tests will be the third such exercise conducted by the region’s regulators during the crisis. The regulator, the European Banking Authority, which was formed at the start of this year, said the tests would take place in the first half of 2011, with results expected in mid-2011.
The results of the last tests, published in July, were received with skepticism by critics who argued that they did not reveal the full extent of banks’ troubled assets, notably sovereign debt exposure. Those tests focused on the trading book, a bank’s liquid portfolio of securities, rather than the banking book, where assets are typically held to maturity.
“If they again come up with something that is manifestly fudged, it won’t impress anyone,” said Graham Bishop, an independent European financial services analyst. By the time the results are published, he said, European policy makers will have had to either substantially expand their financial support mechanisms for countries or move to restructure banking debts. He said he expected the former, which would represent a major step toward fiscal integration of the euro zone.
Last year, seven of 91 banks failed the tests — including Hypo Real Estate in Germany, the Agricultural Bank of Greece and the Diada Savings Bank of Spain. To pass, a bank’s Tier 1 capital, a measure of core capital including common equity and retained earnings, had to remain at or above 6 percent of assets in the face of a new recession and debt crisis.
But since then, Ireland has been required to turn to outside lenders as its banks have required more capital, and large question marks remain over the holdings of some Spanish lenders.
Madrid has lent its banks about 10.6 billion euros ($14.2 billion), which represents about 1 percent of gross domestic product. Citigroup estimates that Spanish banks are carrying about 150 billion euros in undeclared losses.
The European regulator said that the tests, which will be carried out in cooperation with national supervisors, the European Central Bank and the European Commission, would “cover a broadly similar group of banks as last year.” It added, “The methodology and approach taken will build on that used in the 2010 stress test.”
European finance officials met in Brussels this week and discussed the new tests. An official present, who was not permitted to speak publicly, said the process would start in March and results would be published in June. But he said the exact parameters — notably whether to include data on the banking book — had yet to be settled.
Meanwhile, the international regulators — the Basel Committee of the Bank for International Settlements — said that starting in 2013, “all classes of capital instruments,” rather than just stockholders, should fully absorb losses in the event of a bank crisis before taxpayers are exposed to losses.
“This is a pretty big development,” said Christopher Bates, a partner specializing in financial services at Clifford Chance in London. “It’s intended to facilitate the restructuring of bank debt without public money, while keeping struggling banks alive as going concerns.”
During 2008 and 2009, a number of distressed banks were rescued by states injecting funds in the form of common equity and other high quality, of Tier 1, capital. While this supported depositors, it also meant that Tier 2 capital instruments, mainly subordinated debt, “did not absorb losses incurred by certain large internationally active banks that would have failed had the public sector not provided support,” the committee said.
With several exceptions, all new noncommon Tier 1 and Tier 2 securities issued by international banks must include the option starting in 2013 of either being written off or converted into common equity.
Securities issued before that date, and that do not meet the rules, will need to be progressively phased out of banks’ capital between 2013 and 2023. The rules will need to be imposed by national legislators before going into effect.
“It affects a swath of instruments that were relied on by banks for supplementing their capital, which will have to be replaced by new debt with more demanding requirements,” Mr. Bates said.
Stress Test
Europe Failed to Clear Skepticism on Crisis, IMF Says
Jan. 14 (Bloomberg) -- Europe has yet to allay investor “skepticism” about the sustainability of the region’s debt, and any spread of the crisis would cloud the global economic outlook, the International Monetary Fund’s No. 3 official said.
“At least for now it looks like the spillover from the European sovereign crisis to areas outside of the region will be limited,” Naoyuki Shinohara, deputy managing director at the IMF, said in an interview in Tokyo yesterday. “However, if the European sovereign-debt problems were to become bigger, we need to keep in mind that that could bring about considerable downside risks.”
European officials have indicated they’re ready to expand their efforts to contain the crisis that erupted last year and has led to bailout packages for Greece and Ireland. German Chancellor Angela Merkel this week expressed willingness to take whatever steps are needed to stem the turmoil.
The extra yields investors demand to hold Greek and Irish bonds rather than German bunds “still remain very high, despite the rescue packages,” Shinohara said.
“That means skepticism over the sustainability of their debt in the market hasn’t been cleared away,” said Shinohara, 57, a former top currency official at Japan’s Ministry of Finance. “It’s important that countries reduce their budget deficit, but they also need to tackle structural issues including boosting growth and lowering unemployment.”
Brighter Outlook
European Central Bank council member Axel Weber, who heads Germany’s Bundesbank, said the euro area’s economic prospects have “brightened considerably” though inflation risks may rise. “The recovery should continue,” he said today in a speech in Vallender, Germany.
The euro headed for its biggest weekly gain in almost two years amid speculation inflation pressure may spur the ECB to raise borrowing costs. The currency was little changed at $1.3365 as of 10:28 a.m. in London after earlier climbing to $1.3457, the strongest level since Dec. 14. It was 3.5 percent higher in the week, the biggest advance since May 2009.
“The steps that European Union officials can announce in terms of increasing the fund’s size that they have to help the peripheral countries can still take a few weeks to happen,” Mansoor Mohi-uddin, Singapore-based head of global currency strategy at UBS AG, said in a Bloomberg Television interview. “I’d rather still be a seller of the euro on the rallies.”
‘Stand by’ Euro
The extra yield investors demand to hold 10-year Spanish government bonds rather than German bunds touched a record 298 basis points on Nov. 30 compared with an average of 15 basis points over the first decade of the monetary union. The spread was 233 basis points after Spain yesterday sold 3 billion euros ($4 billion) of bonds in its first debt auction of the year.
Merkel said on Jan. 12 that “we’re saying what we’ve always said since the Greek crisis: We will stand by the euro.” She was responding to EU Economic and Monetary Affairs Commissioner Olli Rehn’s call for a “comprehensive” plan to contain the sovereign-debt crisis.
His proposals included expanding the “size and scope” of the EU’s 440 billion-euro rescue fund, the European Financial Stability Facility.
Shinohara, who directed Japanese currency policy as the vice finance minister of international affairs from July 2007 to July 2009, called Japan’s plan to buy bonds to fund Ireland’s bailout a “very welcome development.” The purchases “aren’t a bad investment” for Japan because they would involve AAA-rated bonds and offer higher yields relative to German bunds, he said.
Buying Bailout Bonds
Finance Minister Yoshihiko Noda said on Jan. 11 that Japan will use existing euro assets in its foreign-exchange reserves to buy more than 20 percent of the bonds to be issued later this month by the EFSF.
Japan is considering more purchases of European bailout bonds in coming months to help boost confidence in the euro area, according to the two officials, who spoke on condition of anonymity because the government’s plans aren’t public.
In real effective exchange-rate terms, the value of the yen is “broadly in line with medium-term fundamentals and close to its long-run historical average,” Shinohara said.
The weighted average of the yen’s exchange rate against other currencies was 104.25 in November after rising to 105.17 in October, the highest since February 2009, according to the Bank of Japan.
Shinohara also said China should allow the yuan, also known as the renminbi, to appreciate faster to rebalance its economy.
“We continue to view the renminbi as substantially below the level consistent with medium-term fundamentals,” he said. “However, the exchange rate should not be viewed in isolation and a broad range of policies will be needed if China is to successfully rebalance its economy,” he said, adding that too rapid an appreciation of the currency is undesirable.
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EU Bailout Rates May Need to Drop for Aid to Work: Euro Credit
Jan. 14 (Bloomberg) -- Europe should reduce the interest rate on emergency aid to Ireland by 50 percent when revamping the financial backstop meant to stem the euro-area debt crisis, say economists, including David Mackie at JPMorgan Chase & Co.
Ireland faces an average charge of about 5.8 percent for an 85 billion-euro ($113 billion) rescue package offered in November by a group led by the European Union. The cost threatens to increase the debt load for an economy that the International Monetary Fund projects will grow less than 1 percent this year and below 2 percent in 2012.
“Europe should be able to cut the borrowing rates by around half, or 250 basis points,” Mackie, JPMorgan’s head of western European economic research, said by telephone yesterday from London. “If you want to exit the crisis without government debt restructuring, the current rates will not do it. The borrowing rate is critical given that economic growth will be moderate for some time due to the magnitude of the fiscal tightening that is needed.”
As Spain and Portugal seek to contain borrowing costs and avoid bailouts, European governments are considering lower interest rates on rescue loans in exchange for new guarantees to limit sovereign debt as part of plans to bolster the $1 trillion euro-area financial backstop, said four people with direct knowledge of the talks.
Tapping Fund
Ireland became the first nation to tap the fund, created in May after Greece received a separate 110 billion-euro rescue. In designing the support, EU leaders pushed for loans set close to market rates to press high-deficit countries to put their fiscal houses in order and encourage a return to market financing.
The ratio of Irish debt to gross domestic product will reach 114 percent next year, the EU estimates. That’s up from 25 percent in 2007. Greece’s ratio will climb to 156 percent, the highest for any country since the start of the euro, according to Nov. 29 EU forecasts.
Concern that costs of the aid will add to the debt levels has contributed to the difference in yield between 10-year Irish debt and benchmark German bonds staying above 500 basis points, compared with an average of about 60 during the past decade. That spread narrowed two basis points to 525 basis points at 10:20 a.m. in Dublin.
The central pillar of the rescue package is composed of the European Financial Stability Facility and European Financial Stabilization Mechanism, both of which are AAA-rated funds that sell bonds to raise money for aid. The EU’s EFSM is providing 22.5 billion euros to Ireland and the euro area’s EFSF is giving 17.7 billion euros. The IMF share is 22.5 billion euros.
First Loan
Ireland’s 5.8 percent interest rate is based on planned average loan maturities of 7 1/2 years. That’s less than the 7.9 percent yield on similar maturity Irish debt in secondary markets.
The EFSM’s first loan of 5 billion euros this week cost Ireland 5.51 percent. The interest rate is the result of the 2.59 percent the EU paid on a five-year bond to fund the aid, plus a margin of 2.925 percent under a formula reflecting IMF practices. The rate on loans by the EFSF, which plans to sell its first bond for Ireland later this month, will be based on a similar model.
“It would be reasonable to lower currently charged funding costs by some 200 basis points to 300 basis points, thereby providing additional indirect financial support,” Julian Callow, chief European economist at Barclays Capital in London, said in a Jan. 10 research report.
Revamp Talks
European finance ministers may discuss lower rates on rescue loans when they meet next week. Other possible changes include boosting the lending capacity of the EFSF, which is backed by 440 billion euros in guarantees by euro-area governments, and expanding the facility’s role to allow for debt purchases.
French Finance Minister Christine Lagarde said today that increasing the size of the fund isn’t sufficient. The EU must forge a “global package, not a series of individual parcels,” she said at a press conference in Paris. “Just adding several hundred million won’t be enough.”
Mackie and Callow said Greece should also benefit from lower rates on its emergency aid, which is made up of loans from euro-area governments and the IMF. The Greek government pays about 5 percent for the European portion.
“What is needed is a combination of fiscal tightening across the periphery to reduce primary deficits and a prolonged period of subsidized borrowing costs to ensure that the bulk of the fiscal consolidation goes toward improving the debt dynamics rather than toward higher debt servicing,” Mackie said in a Jan. 7 report.
Greece has already won a European pledge to extend the repayment period on the country’s three-year aid package. When crafting the Irish rescue in late November, European finance ministers said they would look into aligning the Greek loans with the longer maturities of the Irish program.
Greece faces a repayments “hump” in 2014-15 and the EU’s plan to align the nation’s maturities with Ireland’s “will be a positive message to the markets,” Marco Buti, head of the European Commission’s economics department, said at a conference yesterday in Brussels.
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Greece Rating Cut to Junk by Fitch; Outlook Negative
Jan. 14 (Bloomberg) -- Greece lost its last investment grade rating as Fitch Ratings downgraded the country’s debt one notch to BB+, or junk.
The cut was foreshadowed by a warning last month and puts the rating at the same level as at Moody’s Investors Service and Standard & Poor’s. The Fitch grade has a negative outlook, indicating that the credit evaluator is more likely to cut it than to raise it or keep it unchanged.
The country’s "heavy public debt burden renders fiscal solvency highly vulnerable to adverse shocks," Fitch analysts led by London-based Chris Pryce said in a report today.
European governments are considering a package of proposals to contain the euro-area’s debt crisis, which may include purchasing outstanding Greek debt. The euro stayed lower against the dollar following the downgrade, trading 0.2 percent weaker at $1.3344. The yield in the U.S. 10-year Treasury note was little changed at 3.29 percent.
Moody’s lowered its ranking for the nation to Ba1 from A3 on June 14 and S&P reduced Greece to BB+ from BBB+ on April 27.
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Fitch Lowers Greece's Ratings To Junk; Outlook Still Negative
Fitch Ratings became the third major credit ratings agency to cut Greece's ratings into junk territory, the latest sign the heavily indebted European nation continues to struggle from a severe recession.
Already, Moody's Investors Service and Standard & Poor's Ratings Service rate Greece in junk territory--with both last month warning further downgrades were possible. Fitch also warned of a downgrade last month, and became the first ratings agency to act on Greece's ratings this year.
The downgrade to BB+, the highest junk-level rating, acknowledges that while Greece's economic and fiscal performance under the European Union-International Monetary Fund program has in many respects exceeded expectations, its heavy public debt burden renders fiscal solvency "highly vulnerable to adverse shocks."
In May, the cash-strapped Mediterranean country agreed to impose tough austerity and restructuring measures in exchange for a EUR110 billion ($146.9 billion) bailout package with the IMF and others to rescue itself from the brink of bankruptcy.
On Friday, Fitch said despite the significant progress Greece made in reducing the budget deficit last year--by six percentage points of gross domestic product despite a severe recession--the fiscal consolidation effort will still have to be maintained over several years to firmly anchor confidence in Greek sovereign creditworthiness.
Revenue performance, weaker than-originally budgeted, in part reflects the continuing weakness of tax administration and the prevalence of tax evasion.
Fitch did note that despite civil unrest in Greece, it judges the political commitment to the ambitious fiscal consolidation and structural reform program remains "very strong" and that the path to sustainable economic recovery and solvency is achievable. It added the IMF and EU remain fully committed to the success of the program agreed with the Greek authorities.
Still, the ratings outlook is negative, meaning future downgrades are possible, and reflecting that public debt sustainability is still very fragile and renewed access to market financing is uncertain, Fitch said. The economy is forecast to contract 3% this year, following an estimated contraction of 4% in 2010. Fitch said it is vital the economy begins to show some evidence of rebalancing and recovery by the second half of this year to stabilize public debt dynamics.
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Goldman says go long euro/dollar, target $1.37
NEW YORK Jan 13 (Reuters) - Goldman Sachs on Thursday has recommended going long euro against the U.S. dollar on the belief that European sovereign debt tensions will eventually ease.
"Our view has long been that European sovereign tensions will ultimately abate on a combination of better fiscal coordination, support from the strong Eurozone countries for the periphery, solid growth in the Eurozone," Goldman said in its latest research note.
It added that euro zone policymakers' continuing work to further improve the region's fiscal policy framework will help member countries down the road. In addition, pledges of support from the world's largest currency reserve managers led by China and Japan to buy euro zone peripheral debt will help reduce the risk premium on these countries.
On the other hand, Goldman said it continues to see that current U.S. fundamentals are consistent with a gradual dollar depreciation. It cited the country's large current account and fiscal deficits, which will remain an obstacle to strong investment inflows into the United States
Goldman's initial target is $1.37, with a one-day stop on a close below $1.2850.
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Nice run today, but NBG had a better run.
Save a dance for me at $1.50
Not short, just waiting to go long
Greece’s 2010 Deficit Shrinks 36.5%, Beating Target
Jan. 10 (Bloomberg) -- Greece’s central government budget deficit, which sparked a European debt crisis, contracted by more than a third last year as spending cuts more than offset slower-than-forecast revenue growth.
The gap, which doesn’t include outlays by state-owned institutions and companies, shrank 36.5 percent to 19.6 billion euros ($25.3 billion), according to preliminary data released by the Finance Ministry. The decline was more than the 33.5 percent forecast in the government plan that helped Greece secure a 110 billion-euro bailout from its European partners and the International Monetary Fund. Final data are due on Jan. 20.
The Greek bailout prompted investors to shun bonds of the region’s high-deficit nations, sending borrowing costs in Ireland, Spain and Portugal to euro-era highs and forcing Ireland seek emergency aid in December. Prime Minister George Papandreou cut wages and raised taxes, triggering strikes and protests across the country, to make good on his pledge to trim the shortfall to 9.4 percent of gross domestic product last year.
“These figures give confidence that the 9.4 percent target is achievable,” said Ilias Lekkos, chief economist at Piraeus Bank in a telephone interview.
Risk Premium
The results also give the government a 1.5 billion-euro cushion to cover overspending by state-controlled enterprises, Lekkos said.
The yield premium that investors demand to buy Greek 10- year bonds over German bunds fell 27 basis points today to 946 basis points, after reaching a euro-era high of 978 basis points on Jan. 7. The yield on the country’s benchmark 10-year bond fell 29 basis points to 12.43 percent, more than four times the rate on comparable German debt.
Ordinary budget spending fell 9 percent last year to 65.3 billion euros from 71.8 billion euros in 2009, exceeding the government’s planned reduction of 7.5 percent.
State budget revenue increased about 7 percent, boosted by a tax-arrears settlement plan that increased income by around 1 billion euros in 2010. Ordinary revenue grew 5.5 percent, compared with a targeted increase of 6 percent. The government initially forecast a 13.7 percent increase for ordinary revenue and was forced to reduce the goal twice as increases in value value-added taxes and levies on alcohol, tobacco and fuel failed to generate enough income.
Recession Deepens
The austerity measures have deepened the country’s two-year recession and contributed to GDP contracting an estimated 4.2 percent last year. The government forecasts economic output to contract 3 percent this year.
Industrial production fell 7.6 percent in November from the same month a year earlier, more than the 5.2 percent decrease in November, the Athens-based Hellenic Statistical Authority said today. The biggest contraction came in electricity generation, which dropped 13.3 percent.
“The drop in domestic demand is worsening the climate for Greek production and the only supporting factor comes from external demand,” said National Bank
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