Monday, January 25, 2010

Bond markets soaking up Greece

Greece announced a 5-yr 8 billion euro deal today (as expected) – yesterday I called this a Hail Mary. Well, the Hail Mary worked! Books are closed, and the deal is well over subscribed (i.e., strong demand for the deal). Evidently, the talk is that there is natural demand for this product, via the rest of Europe, to shore up the value of the bonds over the near term.

But that’s it, because credit default swaps haven’t moved, remaining elevated well-above the Q4 2008 crisis point.

The credit-default swap (CDS) strips out the interest rate risk, leaving a measure of credit risk. Across the remaining PIIGS countries, CDS spreads in Ireland and Italy are relatively stable, while those of Portugal and Spain are seeing pressure in the wake of recent Greece developments.

Yesterday’s post highlighted the saving problem in parts of Europe (including the PIIGS above).We’ll see how this goes – but it appears that Greece has dodged the bullet for now.

Rebecca Wilder


  1. Since the European states can't directly loan money, this makes sense to them. Close one door and then open another....

  2. Wow a poor bond sale on fundamentals goes off exceedingly well, must be taking a page from the US debt sales! I am SURE the Euro CB's had nothing to do with this, nothing at all. Investors want Greek debt.

  3. The buyers were either 'official' or foolish. Not second guessing as I know it was two days ago, but subsequent market action like Greek 10 years blowing out 51 bps today when rates in the core were essentially unchanged was kind of predictable.