Credits: Remember Me?

Most eyes were on Ireland soverigns in the European credit market, Tuesday. However, that’s not were the biggest action was… Another familiar nation saw their CDS spread blow out almost 100 basis points and took the investors completly by surprise.

“It is ironic that Austria is blocking the aid considering it was one of the most vocal in criticising Slovakia’s refusal.”

Gavan Nolan


It was already in the cards; yesterday the IMF revised its estimate for the Greek debt-to-GDP ratio, and not in a positive direction. But the real kicker came when Austria‘s finance minister Josef Proll indicated that his government is considering withholding its EUR190 million December tranche of assistance, citing Greece’s failure to meet its tax revenue targets.

Greece’s spreads, already underperforming before the news, widened out over 100bps after the announcement. Without the disbursement of funds from the EU, Greece would struggle to fund itself, according to Markit Intraday Alert.

The IMF could possibly step in if Austria stood fast in its refusal to participate, Markit analyst Gavan Nolan notes.

Adding: “It is ironic that Austria is blocking the aid considering it was one of the most vocal in criticising Slovakia’s refusal to bail out Greece.”

Nolan also says the Greece’s volatility had a “knock-on effect” on the other peripheral names, which were only slightly wider prior to the Austria news.

Ireland was expected to get the undivided attention of the markets today ahead of the crucial meeting of euro zone finance ministers later this afternoon.

But they didn’t count on Greece widening dramatically as its solvency again came into question.

The Irish government by Prime Minister Brian Gowen made a statement in the Irish Parliament Tuesday afternoon, underlining the need to restore confidence in the country’s economy and repeating the fact that no bailout agreement have been signed – yet.

Here’s the statement.

“It seems that the onus is now firmly on the Irish banking sector and the need for recapitalisation,” Nolan comments.

EU commissioner Olli Rehn says that Ireland’s problem is its banks, and the sovereign had no immediate funding needs.

This, of course, is not news to the markets.

“The bigger questions are whether bank senior debt holders should be made whole, the conditions of the bailout and what consequences this would have politically for the current coalition government,” Gavan Nolan points out.

The widening in the peripherals caused the Markit SovX Western Europe to blow out 9bp to 171bp.

  • Markit iTraxx Europe 104.5bp (+3), Markit iTraxx Crossover 469.5bp (+13.5)
  • Markit iTraxx SovX Western Europe 171bp (+9)
  • Markit iTraxx Senior Financials 138.5bp (+5)
  • Markit CDX IG 95.5bp (+2)
  • Sovereigns – Greece 950bp (+97), Spain 265bp (+15), Portugal 430bp (+17), Italy 191bp (+8), Ireland 530bp (+33), Belgium 140bp (+3)
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