Posts Tagged default
Why it makes sense to fear Greek default
Posted by Tetyana Matychak in Favourites, Trading Markets on May 18th, 2010
Is everybody overstating the consequences of a Greek default and/or devaluation? The Economist points out that Europe has seen quite a few defaults in recent decades (Russia, Poland) and also break-ups of currency unions (Czechoslovakia, Yugoslavia) — and that none of these events caused a lot of lasting damage.
I’m not convinced, if only because the Russia default caused the collapse of LTCM and a serious crisis; if it weren’t for tough arm-twisting by the Fed and billions of private-sector dollars from America’s biggest banks, it could have been much worse. And the end of the koruna and the dinar also meant the end of the Czechoslovakia and Yugoslavia, and the worry is very much that if Greece or anybody else were to exit the euro, then the whole currency union could fall apart, endangering the EU itself.
More generally, financial markets are good at taking the collapse of risky assets in their stride: what they’re bad at is dealing with the collapse of assets they thought were safe. And until very recently, Greek bonds were considered to be an interest-rate play, not a credit play. As a result, the institutions owning them can ill afford to see big losses on them.
The euro was designed to be a super-safe currency; as such, the repercussions of it falling apart would surely be many orders of magnitude greater than anything we saw in the wake of the collapse of the unlamented Yugoslav dinar. Read the rest of this entry »
Europe’s Debt Crisis Is About to End
Posted by Tetyana Matychak in Favourites, Trading Markets on May 6th, 2010
With the likes Nouriel Roubini, Jim Rogers and George Soros predicting a disastrous default by Greece and others in the euro zone, the contrarian in me has to ask if they could be very wrong. Sources from the City of London who would not go on the record have told me this week that Greek debt is currently a screaming buy.
They believe huge profits will be made for those holding Greek paper when Germany, the IMF and ECB outline a new rescue package that will convince investors they are serious about drawing a line in the sand on the sovereign debt crisis.
Rumors of a European TARP moment could yet be unfounded but with Merkel now serious about getting to grips with the crisis, investors who stay short Greek debt over the weekend could be scrambling to reverse their positions on Monday morning.
Officials at Greece’s debt agency did not respond to CNBC requests for comments. Fears over the long-term health of the euro zone remain high and it is difficult to argue with those who see the possibility of some members exiting the euro on a long term view.
Adam Cole, the Global Head of FX Strategy at RBC Capital Markets, is a euro bear and thinks we could hit $1.10 or $1.15 versus the dollar over the medium term but suggests an announcement on Greece this weekend could offer temporary respite for the market. Read the rest of this entry »
Greek Two-Year Notes Rise
Posted by Tetyana Matychak in Fund Markets on April 19th, 2010
Greek two-year notes posted their first weekly advance since March after the European Union and the International Monetary Fund agreed to a 45 billion-euro ($61 billion) plan to help Greece avoid a default.
The two-year yield fell the most on record on April 12, a day after the accord was announced, before the notes pared gains on concern the aid will be delayed as national parliaments vote on the proposals. The securities recovered after Prime Minister George Papandreou moved closer to triggering the package by arranging a meeting with the European Commission, European Central Bank and IMF for April 19.
“Greece rallied on this news and will continue to do so with every positive step toward access to ongoing official support,” said Giles Gale, a fixed-income strategist at Royal Bank of Scotland Group Plc in London. “Every false step, the main risks lying in the European political process, will push yields higher.”
Two-year yields fell 27 basis points to 6.89 percent as of 5 p.m. in London yesterday, after rising 188 basis points the previous week. Greek 10-year yields rose for a third week, adding 26 basis points to 7.47 percent.
Greece’s budget deficit, at 12.9 percent of gross domestic product, is the largest in the EU. The country’s failure to convince investors it can narrow the gap helped send the yield premium for Greek 10-year bonds over similar-maturity German bunds, the region’s benchmark government securities, to 442 basis points on April 8, the most since the euro’s debut in 1999. Read the rest of this entry »
Rates Rise as Fear Returns on Greece
Posted by Tetyana Matychak in Trading Markets on April 7th, 2010
Greece’s financial crisis flared back into view on Tuesday as doubts about a rescue plan rattled the euro and sent the country’s bonds tumbling to their lowest levels since the problems began.
The selloff in the Greek bond market drove interest rates on Greek debt higher, putting more pressure on the embattled nation as it seeks to borrow billions of dollars this year.
It also intensifies pressure on other European Union nations to be more explicit about terms for any bailout of Greece should it be unable to find buyers for its bonds. The other 15 countries that use the euro have pledged to help, but the bloc remains divided over just where the threshold for aid lies.
The big market moves on Tuesday were a reaction to rumors and press reports, rather than to a significant change in the Greek financial situation. But if jittery bond investors become reluctant to buy new Greek bonds or demand still higher interest rates, European countries might be forced to strengthen their commitment to a bailout. Read the rest of this entry »
Stocks Retreat Before U.S. Jobs Report as Yen, Dollar Advance
Posted by Tetyana Matychak in Currency, Favourites on July 2nd, 2009
European stocks and U.S. index futures fell while the yen and the dollar rose on speculation a report today will show that America’s unemployment rate climbed to the highest level since 1983.
The MSCI World Index of 23 developed countries slipped 0.6 percent at 9:21 a.m. in London, while Standard & Poor’s 500 Index futures slipped 0.5 percent. The yen and the dollar strengthened 0.3 percent against the euro.
The U.S. jobless rate may have risen to 9.6 percent last month, economists surveyed by Bloomberg News said before today’s Labor Department report. That increase would suggest the $12.8 trillion pledged by the U.S. government and the Federal Reserve is doing little to shore up the labor market. The European Central Bank probably will keep borrowing costs at a record low to battle the recession, while Sweden’s Riksbank unexpectedly cut its benchmark rate to 0.25 percent today.
“People have become a little bit too optimistic,” Philippe Gijsels, a senior structured equity strategist at Fortis Global Markets in Brussels told Bloomberg Television. “People will be disappointed. Gradually over the summer and into the autumn we will move lower,” he said. Read the rest of this entry »
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