by Richard Barley
Wall Street Journal
May 20, 2011
Europe could be facing a Lehman moment, the European Central Bank has warned. Yet the credit markets seem to be intent on enjoying a Chuck Prince moment, obeying the former Citigroup boss's dictum that "as long as the music is playing, you've got to get up and dance." How else to explain the continuing disconnect between roaring risk appetite and the threat posed by a possible Greek bond restructuring?
Greek bonds trade at levels that reflect the market's view that a substantial restructuring is inevitable. Underlining what is at stake, the ECB has warned that any move to "re-profile" Greek debt by extending maturities would constitute a credit event, making the bonds ineligible as collateral for borrowing under ECB rules. Yet other parts of the bond market appear unconcerned. The cost of insuring corporate debt has remained low, and Europe's high-yield bond market is on a tear, with issuance running at a record pace.
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