Just a quick bond market note.
ftse was down about 40 points this morning as were all the other European markets. Mid morning they all went vertically up. The reason, as Market Watch printed as a headline, “Portugal sale helps spirit”.
This was the news that Portugal managed to sell about one billion euros of debt this morning. About two thirds in 3 month and one third in ten year. So as I said yesterday there are buyers for dodgy euro debt. But equally as I argued the key is offering high interest.
The less wonderful news about Portugal’s bond sale is this: the yield on the 3 month jumped from 3.6% in June to 4% now. That is a massive jump in bond land. The ten year was much worse. It jumped from 4.1% in March to 5.9% today. Now that is a jump of Olympic proportions.
Yes they sold debt but the real message is how much the Bond buyers ramped up the price. Portugal isn’t going to have anything like 5% growth this year or next. Probably not both years combined. So this deal makes them significantly poorer.
This is how it played out in the run up to the last EU bail out.
Of course this view of the bond news never gets a mention let alone a headline. As does this squib from Bloomberg. Eurostat the EC financial statistics compiler/watchdog (so far as toothless as your granny) reports that it is now sure Greece is STILL not revealing its true level of debt. Eurostat accuses Greece of still hiding the real extent of the losses and debts it is facing from the Currency swap deals it did with the Big Banks.
The same banks who have been buying up the tasty yields on European debts.
What this means is that some time before Christmas, maybe late this month when Eurostat officials go to Greece in person, Greece’s debt will be revised up again. I’m wondering if we’ll find out Greece is also on the wrong end of some deals involving the Swiss Franc. That would be just peachy.
It does also raise this question. What kind of a valueless farce must the European Stress Tests have been if the Greek banks could pass, holding all sorts of Greek National debt on their books, while those conducting the tests didn’t have a clue about the real level of Greek debt?
Lastly I was also talking yesterday about how Bond buyers will have been buying up Euro debt like Greece’s attracted by the high yields. Thus ‘exposing’ themselves to more potential catastrophe if Greece defaults or restructures. As if on cue, this from Bloomberg,
Norway’s sovereign wealth fund, the world’s second largest, said in August that it had bought Greek bonds, along with those from Spain and Portugal, because of higher yields and as those governments push to reduce their deficits.
This despite a growing number of bond market fund managers saying Greek will default it is just a matter of how soon. Of course they could be talking the market to where they want it to go for the benefit of some bet they made. But they could also be correct. If they are, how many banks will cry about systemic catastrophe and blackmail tax payers into another vast “save the banks from collapse” bail out?
The banks buy the high yield/risque bonds to offload on the ECB, right? But buyers from outside Euro-land, they're stuck with it. Do you know who else than banks with the ECB option bought these bonds – except Norway?
No Mr Eirik sadly I don't.
But they will have bought the 3 month in the hope/expectation that nothing disasterous will happen before then or they will be planning on selling it on to someone else.
Also I'm not sure that they will be stuck with it. Most non eu banks will still have an European subsidiary which I think will have access to the ECB.