Tag Archives: Euro

There is something rotten in the state of Greece. Also in Ireland, Portugal, Spain, and Italy.

Europe is patting itself on the back as they supposedly work out a fix for Greece. Basically, Greece will get billions more Euros in exchange for spending cuts. As a result, Greek interest rates fell slightly, though they are still very very high.

Greece 10-year interest rate:

Greece 2-year interest rate:

Great job Greece and Europe! The 10-year interest rate in Greece is now only 16.81%. And the 2-year rate is down to 29.38%. A job well done, indeed!

But wait a second there Europe. Don’t drink your champagne just yet. What about the rest of Europe?

Ireland 10-year interest rate:

Portugal 10-year interest rate:

Spain 10-year interest rate:

Italy 10-year interest rate:

Very puzzling. Why are those interest rates rising to record highs if you solved the problem? I’m starting to think you don’t know what you’re doing.

Sovereign debt crisis update: Yields hitting new highs in Greece, Ireland, Portugal, and Italy.

Interest rates are hitting their highest levels since the euro zone was created. Here are the five most “at-risk” countries, in order of chances of default.

Greece

 

Ireland

 

Portugal

 

Spain

 

Italy

A broke Japan bails out Europe

So now Japan is bailing out the at-risk Euro countries.

Japan on Tuesday threw its support behind Europe’s bailout efforts, saying it will take a major stake in a bond offering for Ireland later this month by one of the special funds set up in the wake of the euro-zone sovereign debt crisis.

The government plans to buy more than 20% of a bond offering by the European Financial Stability Facility, expected some time this month, Finance Minister Yoshihiko Noda said at a press conference. The EUR440 billion fund was set up in June 2010 to help finance bailout efforts.

But where exactly is Japan getting the money from to buy these bonds? Japan’s been running big deficits for years and has debt of 201 percent of GDP, much larger than those European countries. But Japan pays almost nothing in interest rates on its own debt and is buying higher yielding bonds, profiting from the spread.

From a more macro viewpoint, Japan is monetizing the Euro debt just as the Fed is monetizing the US debt. But the difference is huge. These Euro countries are much closer to defaulting than the United States is and the spread between short-term Japanese rates and long-term Euro rates is much larger than the spread between short- and long-term rates in the US. Though Japan’s purchase is “only” 88 billion Euros compared to the Fed’s $600 billion in QE2 alone, Japan has a smaller economy and is taking a much larger risk.

The Yen and Nikkei index fell after the news. Japan should worry about its own fiscal and economic situation before trying (and likely failing) to help others.

Ready for round three of the sovereign debt crisis?

First came Greece. Next was Ireland. Next up may be Portugal.

Portugal under pressure to seek EU/IMF aid

Pressure is growing on Portugal from Germany, France and other euro zone countries to seek financial help from the EU and IMF to stop the bloc’s debt crisis from spreading, a senior euro zone source said on Sunday.

Some preliminary discussions on the possibility of Portugal asking for help if its financing costs on markets become too high have taken place since July, the source said.

No formal talks on aid have started yet, a number of euro zone sources said, but the pressure was rising in the Eurogroup, which brings together euro zone finance ministers.

“France and Germany have indicated in the context of the Eurogroup that Portugal should apply for help sooner rather than later,” the senior source said, adding Finland and the Netherlands had expressed similar views.

The article continues that Portugal and Germany are denying all the above, but then points out that this was the case before Ireland got its bailout. The article then returns to reality.

The growing pressure on Lisbon follows a sharp rise in Portuguese 10-year bond yields at the end of last week to euro lifetime highs above 7 percent, as investors worried about the prospect of up to 1.25 billion euros of bond supply it will offer at an auction on Wednesday.

The yield of five-year Portuguese bonds on the secondary market is 6.43 percent and 10-year paper trades at 7.26 percent. Economists say a key question for Portugal is how long it can sustain the high yield levels, and the auction will be an important gauge of that.

Portugal and the EU can fight reality for only so long. In all likelihood, the bond market will force Portugal to get help. And then it will force Spain and Italy to do so. Belgium may also need help if they can’t form a government. With the at-risk economies slowing due to austerity and countries like Germany and France giving free money to them, even those countries will be in economic trouble.

How long will Germany and France give away their money to others instead of saving it for themselves? How much longer will the Euro last?

The sovereign debt crisis continue, but the MSM is keeping it a secret.

You really have to dig to find information about the continuing sovereign debt crisis in Europe. The only article on the subject I saw on Marketwatch, a large financial website, had the story buried within a piece about the U.S. Dollar:

Renewed pressure on bonds in the euro-zone periphery, as well as pressure on Belgian debt, helped drag down the single currency, strategists said. Fears that rising borrowing costs could force Portugal to seek a bailout were renewed as Lisbon outlined plans Thursday to tap credit markets next week.

Proposals to potentially require senior debtholders to take write-downs in the event of future bank crises also led to a selloff in peripheral bonds, pushing higher bond yields and the cost to insure the debt.

Even Greek bonds are still falling, with the premium investors demand to own them instead of German bonds hit a fresh intraday high, according to Dow Jones Newswires.

I searched and couldn’t find any details at The Wall Street Journal.

Thankfully, Bloomberg has the story:

Portuguese Bonds Lead Peripheral Euro-Area Decline Amid Looming Auctions

Portuguese government bonds led declines by securities from the euro-region’s most indebted nations amid concern demand at auctions next week may flag.

Spanish 10-year bonds fell, driving the extra yield investors demand to hold the securities instead of similar- maturity German bunds to the highest in more than a month. The European Union proposed yesterday that bank regulators be granted powers to write down debt in future crises. Belgian debt dropped amid a political impasse. German notes were little changed after the U.S. added fewer jobs than analysts estimated.

The yield on Portuguese 10-year bonds rose 16 basis points, after a 27 basis-point increase yesterday, to 7.34 percent at 4:24 p.m. in London. The 4.8 percent security maturing in June 2020 fell 0.955, or 9.55 euros per 1,000-euro ($1,295) face amount, to 83.10. The yield is up 33 basis points since Dec. 30.

The cost of insuring against default on European government debt, measured by the Markit iTraxx SovX Western Europe Index, increased four basis points to a record 217. Contracts on Portugal rose 10 basis points to 535, the highest level since Nov. 30, according to CMA. Spain increased 4.5 basis points to 353, Italy climbed 9 to 251, and Belgium reached a record 249.

Spanish 10-year yields climbed three basis points to 5.52 percent. The yield premium to bunds increased to 263 basis points, after reaching 264 basis points, the most since Dec. 1.

Italian 10-year bond yields rose four basis point to 4.82 percent, with Irish yields increasing six basis points to 9.25 percent.

In case you thought the sovereign debt crisis was over, just the opposite. We are still in the early stages of it.