European credit spreads were moderately tighter Tuesday ahead of the much anticipated FOMC decision due after the close. The other keenly awaited event of the day, Ireland‘s government bond auction, failed to deliver the market direction that many had expected.
“Even though the sovereign is fully funded for 2010 and this auction was pre-funding for 2011, investors are concerned that its broken banking system could force it to seek external aid and/or restructure in the medium-term.”
The auction was deemed a success by most observers, with the sovereign selling the maximum EUR1.5 billion, Markit reports.
The EUR500 million four-year issue had a bid-to-cover ratio of 5.1, more or less in line with the 5.4 achieved last month.
The EUR1 billion eight-year issue had a bid-to-cover of 2.9, matching the last such issue in July.
But the yields of 4.767% and 6.023% were significantly higher, reflecting the deterioration in Ireland’s credit standing in recent weeks.
Spreads Back To Record High
Ireland’s spreads tightened after the auction results were announced.
However, the 20bp gains were short-lived, and Ireland’s spreads are now more or less unchanged from yesterday’s levels, i.e. close to record wides.
“Even though the sovereign is fully funded for 2010 and this auction was pre-funding for 2011, investors are concerned that its broken banking system could force it to seek external aid and/or restructure in the medium-term,” Gavan Nolan at Markit Credit Research writes in a statement.
Such fears have been allayed on Spain, at least for the time being.
The country also sold debt yesterday, and had little difficulty in placing EUR7.036 billion of 12- and 18-month T-bills, slightly more than the EUR6-7 billion indicative range.
Bid-to-covers were down from the previous auctions but that was no great surprise given the size of the debt sale.
Greece continued to outperform after it saw strong demand for EUR390 million 13-week T-bills.
Expecting Unconventional Measures
In North America, better than expected US Housing Starts figures were overshadowed by the impending FOMC decision.
“An announcement of further QE is thought unlikely but investors will be looking for a shift in language that suggests more “unconventional” measures are probable in the months ahead,” Nolan says.
- Markit iTraxx Europe 110.5bp (-0.5), Markit iTraxx Crossover 512bp (0)
- Markit iTraxx SovX Western Europe 158bp (+0.5)
- Markit iTraxx Senior Financials 138bp (+2)
- Sovereigns – Greece 805bp (-20), Spain 235bp (-3), Portugal 372bp (0), Italy 192bp (-2), Ireland 442bp (+4), Belgium 142bp (-3), Hungary 346bp (-7)
- BP 195bp (-5)
Select Your Language:
- Ireland’s debt sale – well received, thank you very much (ftalphaville.ft.com)
- Ireland CDS Hit Record High (blogs.wsj.com)
- Ireland credit default insurance costs rise again (marketwatch.com)
- Mmm, Portuguese yield stew (ftalphaville.ft.com)
- Ireland sells $2B in bonds as eurozone debt fears ebb (ctv.ca)
- WRAPUP 2-Irish, Spanish, Greek auctions calm investor nerves (reuters.com)