Tuesday, 13 July 2010

Greece finds it difficult to raise cash on the market & more stress test problems

The FT reports today that Greece had to scale back its proposed bond issuance yesterday from 12 months to 6 months tenor and roughly halving the quantity. Even at this short maturity the Greeks are paying 4.55% up from 1.38% in January. They would have liked to issue at 12 months but were not prepared to pay the rate the market would demand. Postponing the day of reckoning till next month I would say. Existing Greek 10 year bonds yield about 10.5% slightly down following 'helpful' ECB Greek bond purchases. More worrying is the report that Greek tax revenues are falling as the EU/IMF fiscal reforms start to bite.

The FT also reports the Chinese State Administration of Foreign Exchange, SAFE, bought 400mn € of 10 year Spanish government bonds last Tuesday. The offer was oversubscribed with the Chines bidding for up to 1bn€ of these bonds. Clearly Spain is still able to fund itself at 10 years all be it at 2% over bunds, not sustainable over any length of time in my view.

S&P have warned UK debt may be downgraded and interest rates therefore rise despite Osborne's measures to curb the national debt.  Worrying when put alongside the latest ONS figures showing a 1.6% drop in exports in the 3 months ending March and that the 0.3% increase in GDP over the same period was caused by a 0.4% boost from Labour's death throw unfunded spending spree. Hard times are coming.

Reuters have just reported that the EU Economic affairs commissioner, Otto Rehn as saying, "It is fully in the self interest of ... every bank for there to be full disclosure of the results of the stress tests, that is the best way of restoring confidence to the banking sector." Fine words but the EU Finance ministers can't agree on this full disclosure. Sources said France was questioning the need to publish the exposure of banks to sovereign debt and underlined the difficulties of having a harmonised tier one capital ratio which would enable comparisons across the EU. Ah so now we know who has a lot of Greek debt on the books.

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