by Richard Barley
Wall Street Journal
February 2, 2011
Time to take a chill pill. Bonds from troubled euro-zone peripheral countries are rallying, with yield spreads contracting sharply versus safe-haven German debt. The worst fears of the bears haven't come to pass: Portugal and Spain have maintained market access, and political noises suggest the euro zone is trying finally to cap the crisis. But the bulls shouldn't get too worked up yet: the potential for disappointment is large.
The moves have been large. Spanish, Portuguese and Irish 10-year bond spreads have tightened by 0.9-1.0 percentage point against German Bunds from their peak in early January, according to Tradeweb. Greek spreads have collapsed by 2.3 percentage points. The cost of insuring government debt via the Markit iTraxx SovX Western Europe credit-default-swap index on Wednesday hit its lowest since October.
True, the news has been encouraging. The continued strong recovery in Germany and building inflation pressures have driven bund yields up, partly explaining the tightening. Spain successfully syndicated a 10-year bond that was oversubscribed, and the bonds sold by European institutions to fund the Irish bailout saw a gargantuan appetite of over €60 billion ($82.99 billion). Spain floated plans to recapitalize its savings banks. There has been a flood of ideas for transforming the €440 billion European Financial Stability Facility into something bigger and better suited to the crisis. Even the European Central Bank felt able to refrain from buying bonds last week.
More
No comments:
Post a Comment