Tag Archives: PIIGS

Greek debt auction goes very well

Athens auctioned off around $1.6 billion in three-month bills this morning, proving that the sovereign credit fears of the spring have been almost entirely allayed.

Demand for the offering was heavily oversubscribed — 5.19 times as many bids as the Greek government had debt to sell — and the yield finally priced at 3.75%.

When you consider that the offering was originally set to raise only $1.2 billion but was expanded by 30% once the bids started coming in, the news is fairly spectacular for the Greeks and for the euro zone.

The interesting thing is that more than 50% of the bonds went to foreign investors. This may mean U.S. traders and other people coming in from ultra-low-rate markets looking for a better return on their money.

After all, 3.75% is a lot more impressive than the 0.14% that 3-month Treasury bills currently pay — assuming you can live with the risk that Greece may somehow default on its credit obligations between now and January.

Since that risk seems relatively low, taking the Greek securities is probably a good trade.

There is also the chance that China is continuing to aggressively buy troubled euro debt in order to backstop the euro . . . and in so doing, keep the yuan from rising too high.

Either way, good news for the euro and EU (quote):

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Portugal, Ireland risks still very alive

More people should be talking about the fact that the credit risks in countries like Ireland and Portugal have gone back up to record levels. Talk about canaries in the macro coal mine!

The spread between what it costs to insure debt on the euro periphery — Ireland and Portugal in particular — and the cost of insuring comparable bonds in the core (Germany) has crept back up in the last few weeks.

Despite assurances to the contrary from people like Goldman Sachs, the markets are still worried about the prospect that one of these countries will eventually default on its debt.

At this point, both Portuguese and Irish bonds are trading at a record discount compared to German debt, which has rallied as euro traders hope to contain their risk exposure.

Spanish yield spreads are also rising to two-month highs, but are still slightly better than the levels they suffered at the peak of the euro crisis. Traders widely expect at least one more credit rating downgrade for Spain in the next week or so.

Irish banks, especially AIB (quote), have been back under pressure as a result of this. Not a good time to buy these stocks. There will likely be more bad news — and not much good news — to come.

Among emerging debt funds, PMB (quote) and ECY (quote) already avoid the euro periphery.

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