Belgium Joins The PIIGS: And Then They Were Six

Those hoping for a euphoric reaction to the weekend bailout of Ireland must have been disappointed today. Even Italy, which many had started to regard as no longer a PIIG, matched its record wide. Contagion fears have certainly not been assuaged; if anything, they have become more heightened.

“And the rate at which Belgium is widening means that we may have to find a new derogatory acronym.”

Gavan Nolan


The Markit iTraxx SovX Western Europe index surged to another record wide and the two Iberian sovereigns broke the record levels that they hit last week.

Ireland’s funding needs for the next two years seem to have been settled by the bailout, albeit at a less than generous average rate of 5.8%.

And the fact that bank senior bondholders won’t be sharing the burden before 2013 has been welcomed by the markets, if not by the Irish people.

But the political risk remains ahead of the December 7 budget, Gavan Nolan at Markit Credit Research points out.

“The consensus seems to be that the coalition government will manage to get it through, but there is no guarantee that the incoming government early next year will not want to renegotiate the terms of the bailout.”

The rescue of Ireland by the EU/IMF was more or less priced into Irish spreads, so the widening was concentrated in the other peripherals (bar Greece).

“Speculation that Portugal is next in line has intensified and has now spilled over into sovereigns – such as Belgium – that were perceived as relatively safe a few months ago,” Nolan Writes.

Core euro zone countries have also widened significantly.

Banks lost the gains they made this morning, the sovereign debt concerns outweighing the relief from the lack of “burden sharing” for Irish bank senior bondholders.

AIB and Bank of Ireland senior CDS, unsurprisingly, outperformed the rest of the sector, though liquidity remains poor on these names.

(Markit Liquidity Scores of 3 and 4 respectively).

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  • Markit iTraxx Europe 115bp (+5), Markit iTraxx Crossover 515.5bp (+21.5)
  • Markit iTraxx SovX Western Europe 198bp (+10.5)
  • Markit iTraxx Senior Financials 166bp (+1.5)
  • Sovereigns – Greece 960bp (-4), Spain 353p (+28), Portugal 545bp (+43), Italy 249bp (+34), Ireland 615bp (+15), Belgium 188bp (+29)

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