A Market Meltdown

Financial markets are beholden to the Japanese nuclear situation, and the twists and turns of the story are causing volatility in every corner of the financial market. In fact, if we are facing a nuclear meltdown in Japan, we’re also facing a financial meltdown. Investors woke up this morning to find that the Japanese authorities were still struggling to cool the overheating reactors. Japan’s sovereign CDS was 16 basis points wider at 120, (about the same level as Italy and Saudi Arabia), while the Markit iTraxx Japan was trading around 150 basis points , 15 bp’s wider than yesterday’s close.

“Some market participants were treating the news with caution but not enough to stop spreads rallying in the afternoon.”

Gavan Nolan


After yesterday’s aborted attempt to use military helicopters to drop water on the reactors, the radiation levels were still way too high today, and the Japanese rescue workers had another go at it. But reports suggests, however, that much of the water missed its targets and the radiation levels were rather rising than falling as the efforts to douse the reactors with high-pressure hoses ultimate proved to be ineffective.

Tokyo Electric Power Co (Tepco), the operator of the nuclear plants, saw its spreads widen by nearly 100 bp’s to 390, Thursday.

The seeming lack of progress concerned investors, and I guess it was no surprise to see Japan’s CDS spread spiral upwards.

The chart above shows the recent volatility, reflecting the uncertainty over the eventual costs of the disaster.

I wrote in a post yesterday that Tepco was about to build a new power cable to supply electricity enough to cool down the reactors.

(See: Nuclear Holocaust: All We Need Is A Solar Storm (Or A Crazy Hacker)

Well, I must admit I halted for a second when I read the news report saying that the company was trying to fix the original one, that apparently has been broke for some time… and that didn’t ease the volatility.

Tepco said they would fix the cables that supply electricity to the reactors cooling systems by the end of the day. We’re still waiting for that confirmation.

But according to Gavan Nolan at Markit it “acted as a boon to risky assets across the globe.”

“Some market participants were treating the news with caution but not enough to stop spreads rallying in the afternoon,” he adds.

And Nolan deserves some credit for doing his best to cheer us up, pointing to US Philly FED Index, released today:

“More concrete news came in the form of the Philly Fed index, which posted its strongest reading since January 1984. The index came in at 43.4 in March, up from 35.9 the previous month and confounding expectations of a small decrease,” he concludes his daily summary.

  • Markit iTraxx Europe 101.5bp (-3.5), Markit iTraxx Crossover 403bp (-7.5)
  • Markit iTraxx SovX Western Europe 168bp (-7)
  • Markit iTraxx Senior Financials 152.75bp (-5.75), Markit iTraxx Subordinated Financials 269bp (-9)
  • Sovereigns – Greece 965bp (-19), Spain 220bp (-7), Portugal 503bp (-11), Italy 157bp (-5), Ireland 580bp (-8), Belgium 144bp (-6))
  • Saudi Arabia 130bp (-4), Bahrain 348bp (-6)
  • Japan 110bp (+6)
  • Markit iTraxx Japan 140bp (+5)
  • Tokyo Electric Power Co – 345bp (+50)
  • Markit Bonds – Japan 1.9 Mar 21 106.39 (106.30 yesterday)

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37 Comments

Filed under International Econnomic Politics, National Economic Politics

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