Disregarding the discussion about the political effects of the protests in the Middle East, how about the financial implications?
The cost of protecting sovereign debt against non-payment in northern Africa and the Middle East continued to rise Tuesday as investors reacted to ongoing turmoil in Libya. Morocco was hardest hit, with the spread on five-year credit default swaps widening to 200 basis points from around 184 on Monday, according to data provider Markit. That means it would cost $200,000 annually to insure $10 million of Moroccan debt against default for five years, up from $184,000. The Egyptian CDS spread widened 19 basis points to 375, Markit said, while Bahrain’s spread widened 10 basis points to 317. The Israel CDS spread widened to 163 from 154.
Losses by banks in this region will only hurt the important countries’ fiscal situation.
Looking at Portugal, now the key country, interest rate are new highs.
The turmoil in the Middle East just adds a new twist to the sovereign debt crisis. Until nations reduce their debt levels, which none are doing right now, this story is far from over and will be around for years to come.
Ireland finally got its bailout on Sunday and the market is less than impressed. In fact, one could say it is outright disappointed. Marketwatch reports:
The cost of insuring Spanish and Portuguese government debt rose Monday as spreads on peripheral euro-zone sovereign credit default swaps, or CDS, widened to record levels in the wake of a lackluster Italian bond auction, analysts said. The five-year Spanish CDS spread widened by 25 basis points to 350 basis points, according to data provider Markit. That means it would now cost $350,000 a year to insure $10 million of Spanish debt against default, up from $325,000 on Friday. The Portuguese spread widened to 545 basis points from 502, Markit said, while the Italian spread widened to 231 basis points from 215. “Spain and Portugal are now at record wides, suggesting that contagion fears haven’t been assuaged by Ireland’s bailout,” said Gavan Nolan, vice president for credit research at Markit.
When Greece got its bailout, spreads narrowed and the market was happy. But then credit in Europe headed down and spreads hit new highs. Traders are acting smarter this time. If the bailout didn’t work for Greece, they are not going to assume that it will work for Ireland… or Portugal… or Spain.
And the sovereign debt crisis continues.
Portugal, Ireland, Spain CDS spreads hit records
Fears surrounding sovereign-debt problems on the periphery of the euro zone drove the cost of protecting the debt of Ireland, Portugal and Spain to record highs on Thursday, according to data provider Markit. The spread on five-year Portuguese credit-default swaps widened to 505 basis points from around 491 on Wednesday, topping the 500-level for the first time, Markit reported. That means it would now cost $505,000 a year to insure $10 million of Irish sovereign debt against default for five years. The five-year Irish CDS spread widened 27 basis points to 620, while Spain’s spread widened to 294 basis points from 279. Greece’s spread was 12 basis points wider at 890.
I am in total shock and disbelief. No, not that these countries are headed down the drain. I’ve been warning about that for a while. I am shocked that this isn’t on the front page of every newspaper and the lead story on the TV and radio news shows. The world is burning while the main stream media fiddles.
Posted in Economics, Sovereign debt crisis
Tagged 2010 European sovereign debt crisis, Basis point, Credit default swap, Ireland, Markit Group, MSM, portugal, Portuguese language, spain, Yield spread
A couple of news stories in the ongoing sovereign debt crisis.
Bad news for Ireland:
The cost of insuring Irish debt against default hit a fresh record Friday with investors fearing that Ireland’s draconian budget cuts will slow economic growth and further weaken public finances.
Spreads on Irish five-year sovereign credit default swaps topped 6.10 percentage points Friday, according to data provider Markit, after having briefly touched 600 basis points Thursday.
This means that investors will have to pay EUR610,000 annually to ensure EUR10 million Irish debt against default. Some market watchers note that CDS trading starts to dry up at these levels as investors worry about being caught on the wrong side of the trade.
CDS are tradable, over-the-counter derivatives that function like an insurance contract for defaulting on debt. If a borrower defaults, the protection buyer is paid compensation by the protection seller.
The Irish 10-year yield spread over German bunds, which show how large a premium investors demand to hold Irish bonds versus more-stable German debt, also hit a record of 5.31 percentage points Friday.
Bad news for Spain:
The Bank of Spain on Friday said it estimates third-quarter gross domestic product in the country was unchanged from the prior quarter. That follows a gain of 0.2% in the second and 0.1% in the first quarter. In a monthly economic bulletin, the Bank of Spain said the economy likely grew 0.2% on an annual basis in the third quarter. Official third-quarter GDP data will be released by the National Statistics Institute on Nov. 11. The Bank of Spain said growth was likely stymied by government austerity measures and the effects of consumers tightening spending as value-added taxes went up from July 1.
Today, the Dollar is up as traders sell Euros. Even with the Dollar up (which usually hurts commodity prices), gold and the other precious metals are rallying to record highs. Traders are looking for safety as the chances of an Irish default increase. Furthermore, we are seeing in Spain that “austerity” is a bitter but necessary medicine.
After years of liberal government spending and big deficits, Ireland and Spain (along with Greece and Portugal) are damned if they do and damned if they don’t. Unfortunately, the United States is not that far behind them.
Posted in big government, Economics, Gold, Government spending, Sovereign debt crisis, Stimulus spending
Tagged 2010 European sovereign debt crisis, Bank of Spain, big government, Credit default swap, Default (finance), Deficit, economics, Government, Government debt, government spending, greece, Gross domestic product, Ireland, Irish people, Markit Group, spain, United States