Tag Archives: Basis point

Spinning a Wildfire

At least EU’s commissioner for energy got a bit of a boost Wednesday after saying that he feared a catastrophic event in Japen within hours. The financial markets went – of course – straight into free fall, and Mr. Günther Oettinger and his spin doctors probably made an unofficial speed record in official dèmentis with a contradiction statement within minutes after the first one. But spinning a wildfire is not an easy task.

“The lack of signs of improvement or even stabilisation sent stocks down sharply again and spreads were wider on the day during the afternoon.”

Gavan Nolan


It was perhaps inevitable that there would be a short covering rally at some point this week. Credit markets in Japan had widened dramatically for three days in succession; it would have been no surprise to see a pull back at some stage. And so it proved Wednesday morning when spreads opened tighter.

Japan’s sovereign CDS spreads were 11bp tighter at 105 basis points, reversing much of the widening of Tuesday.

The Nikkei was up over 5%, while the Markit iTraxx Japan index closed at 135 bp’s, 17 bp’s tighter than yesterday.

“Bid/ask spreads of 10bp were an improvement on the 15bp seen yesterday, though they were still considerably higher than the usual 1bp. Liquidity remains impaired,” credit analyst Gavan Nolan at Markit Credit Research points out in his daily summary.

A relatively bullish FOMC statement late yesterday added to the positive sentiment. he adds.

“The economy is on a “firmer footing” and the recent inflationary pressures will be ”transitory”, according to the Fed,” he writes.

But the rally soon lost momentum.

The impact of the nuclear accident in Fukushima is still uncertain, and there are now concerns over all six of the reactors at the plant.

A plan to use helicopters to cool the reactors had to be cancelled due to the high radiation levels.

“The lack of signs of improvement or even stabilisation sent stocks down sharply again and spreads were wider on the day during the afternoon,” Gavan Nolan explain.


And the incendiary comments from EU energy commissioner. Günther Oettinger, that the situation was “out of control” didn’t help- at all!

Nor did the press release a few minutes later, trying to explain that the EU commissioner only had expressed his feelings of fear, and not stating any kind of facts.

Well, looking at the chart of Tokyo Electric’s 5-years CDS it seems clear that Mr.  Oettinger’s  feelings is highly correlate with the reality of the situation.

Japan wasn’t the only factor feeding risk aversion. Bahrain has been overshadowed by events in Japan but the deteriorating public order situation there has potential ramifications for global markets. Saudi troops moved in on Monday – at the request of the Bahraini government – and the authorities declared martial law yesterday. Troops used force today to drive protesters out of Pearl Square in Manama, the heart of the anti-government movement.

“Oil crept up from $107 to $111 a barrel today, a reminder that events in the Middle East can affect global growth,” Nolan notes.

European sovereigns continued to hold up relatively well, though there was one notable laggard, according to Markit.

Portugal was downgraded to A3 from A1 and left on negative outlook by Moody’s, the agency citing the “subdued growth prospects” of the Iberian sovereign.

This didn’t come as a shock to market participants, and the downgrade only brought Moody’s into line with S&P.

The country’s auction of 12-month T-bills, however, had a far greater effect on sentiment.

The EUR1 billion debt sale was met with relatively tepid demand, the bid-to-cover ratio of 2.2 significantly less that the 3.1 achieved at the last auction held only two weeks ago.

The yield was also considerably higher at 4.331% compared to 4.057%.

“The positive effects of the EU summit are still lingering but it hasn’t quashed talk of a bailout. Investors are all too aware that the sovereign has sizeable refinancing needs over the next two months,” Nolan concludes.


  • * Markit iTraxx Europe 105bp (+1), Markit iTraxx Crossover 410bp (+4)
    * Markit iTraxx SovX Western Europe 175bp (-5)
    * Markit iTraxx Senior Financials 158bp (-2), Markit iTraxx Subordinated Financials 278bp (-1.5)
    * Sovereigns – Greece 985bp (-5), Spain 227bp (-12), Portugal 513bp (+7), Italy 160bp (-4), Ireland 588bp (-20), Belgium 150bp (-4)
    * Saudi Arabia 133bp (0), Bahrain 351bp (-6)
    * Japan 115bp (-1)
    * Markit iTraxx Japan 148bp (-5)
    * Tokyo Electric Power Co – 345bp (-21)
    * Reinsurers – Swiss Re 125bp (-1), Munich Re 76bp (-1), Hannover Re 135bp (+2)
    * Utilities – RWE 87bp (0), EON 85bp (+2), EnBW 85bp (-2), VATFAL 69bp (-1)
    * Markit Evaluated Bonds – RWE Fin BV 6.5 2021 asset swap spread 95bp (0), EON Int Fin 5.75 2020 asw 129bp (0)

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Middle East CDS Spreads Explodes

The spreads on middle east sovereign CDS spreads exploded yesterday, and is assumed to continue to widen today as protesters fueled by Mubarak’s TV appearance are about to make the situation even more unstable. And the contagion is now evident. The costs of insuring debt of several nations in the area is skyrocketing, indirectly affecting the European sovereigns.

“More spreads volatility can be expected as the story unfolds.”

Gavan Nolan


The Egyptian sovereign CDS spread jumped a whopping 30 basis points Thursday, hitting a record wide of 305 bp’s, and is now approaching the Portuguese level. The most critical part, however, is that the rising financial costs is spreading to neighboring countries and even affecting Europe.

The Egyptian CDS spread tightened a bit before Egyptian president Mubarak’s TV speech, on expectations that he would announce his resignation.

Well, he did the exact opposite, sparking a new wave of fury amongst the protesters and providing more uncertainty about the whole mid-east situation.

Egyptian sovereigns closed at 305 bp’s (+20), pumping the spreads on Tunisian CDS’ up to 188 basis points (+17) and the  Moroccan up to 188 basis points ((+21).

In addition the Bahrain spreads widened 13 bp’s to 245.

Lebanese CDS spreads closed at 348 bp’s, Saudia Arabia 120 bp’s and the Israeli at 139.

These nations are closing in on the Spanish and Portuguese levels – next stop is the Irish level, while it’s still some way to go before they reach the Greek level around 1.000 basis points above the German benchmark.

It is obvious the there’s a group of “PIIGS” forming in the Middle East, consisting of Egypt, Bahrain, Lebanon, Morocco and Tunisia.

I’ve been trying to find a suitable acronym, but I’m still working on it. Any suggestions?

The M-BELT

The MET-LB

The BETLM

One might also include Israel and Saudi Arabia who also are infected with a CDS level of 139 and 120, respectively.

Then we have:

* SLIM-BET

* BT-SLIME

* BIMSITE

* MISBELT

Okay, I’ll stop now…..

Here’s some quote from Markit’s credit analyst Gavan Nolan commentary, Thursday:

“This morning Twitter was alive with rumors that Saudi Arabia’s King Abdullah was dead. This was swiftly denied by the Saudi foreign minister, who said that the King was alive and well in Morocco. Nonetheless, the idle speculation caused the oil price to spike upwards before it recovered on the denials. Saudi’s sovereign spreads also widened sharply and didn’t really recover, though it should be noted that it is quite an illiquid credit (Markit Liquidity Score of 3).”

“Trading was light in other MENA names (Middle East NAtion) but Israel also saw some modest tightening. But it is still unclear how the transition from the current form of government will develop, though we can be fairly sure that the army will play a major role; as it was always likely to. More spreads volatility can be expected as the story unfolds.”

“Did markets in Europe and North America finally sit up and take notice of the Egypt revolution? There was some improvement in risky assets late afternoon, though how much of this was due to Middle Eastern developments is debatable. The Markit iTraxx Europe opened wider and stayed there until the close. It broke out of the 95bp-97bp range, where it has been trading for most of February, before recovering towards the close.”

“Aside from Saudi Arabia and Egypt, European sovereigns were not without incident. This morning Portugal’s CDS spreads widened sharply after bond yields reached unprecedented levels. This in turn prompted the ECB to enter the market and buy Portuguese government debt, the first time it has intervened for a few weeks. The intervention was effective, at least partially, and caused peripheral spreads to come back in from their earlier wides.”

  • Markit iTraxx Europe 97bp (+0.75), Markit iTraxx Crossover 397.25bp (+2.25)
  • Markit iTraxx SovX Western Europe 170bp (+2)
  • Markit iTraxx Senior Financials 162.5bp (+4), Markit iTraxx Subordinated Financials 272.5bp (+2.5)
  • Sovereigns – Greece 829bp (+15), Spain 238bp (+3), Portugal 440bp (+11), Italy 173bp (0), Ireland 565bp (+5), Belgium 168bp (+3), France 90bp (+1)
  • UK 60bp (+1)
  • Egypt 335bp (-20), Tunisia 188bp (+17), Morocco 188bp (+21), Saudi Arabia 120bp (+12), Bahrain 245bp (+13), Qatar 98bp (+2), Lebanon 348bp (-7), Israel 139bp (+4)

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Credit Markets: Calm & Consolidated

It seems that the credit markets are in the midst of one of their quietest periods for some time as investors look to consolidate after the recent rally, according to Markit Credit Research. Market participants didn’t seem to pay any attention to neither Egypt or Europe, Wednesday.  However, the fear of contagion in both areas is still very much present.

“The contagion effect is still there, but was not as noticeable as it was last week.”

Gavan Nolan


The sovereign CDS spreads widen again today. The Markit iTraxx CEEMA index still underperformed the Markit iTraxx SovX Western Europe, giving back some of the ground it made up over the last few days. But elsewhere the market was directionless.

Omar Suleiman, the vice-president who has emerged as the apparent power-broker, warned that Egypt could face a disastrous coup if talks aren’t successful and disorder continues.

The protests in Cairo are entering their third week and the masses have now gathered outside parliament. And so far there has been little sign of the protest fatigue that the authorities appear to be counting on.

“The contagion effect is still there, but was not as noticeable as it was last week,” credit analyst Gavan Nolan writes in his daily summary.

The Markit iTraxx Senior Financials index bounced back after widening in the previous two days.

“The sovereign market had negligible impact, and the relatively thin liquidity in the index probably contributed to the swings, according to traders,” Markit reports.

Speculation that Axel Weber’s decision to not stand for a second-term as Bundesbank president, rules him out of the ECB presidency may also have helped peripherals. Weber is a vocal opponent of the ECB buying peripheral debt, and him leaving the race to succeed Trichet could be interpreted as a positive development for the euro zone stragglers.

But it is not clear that Weber has ruled himself out –  and even if he does,  it is not given that a more dovish candidate will become fill the position.

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  • Markit iTraxx Europe 96bp (+1), Markit iTraxx Crossover 396bp (+4.5)
  • Markit iTraxx SovX Western Europe 168bp (-3)
  • Markit iTraxx Senior Financials 159.5bp (-5), Markit iTraxx Subordinated Financials 272bp (-2.5)
  • Sovereigns – Greece 810bp (-3), Spain 234bp (0), Portugal 433bp (+9), Italy 173bp (0), Ireland 562bp (+4), Belgium 164bp (+2), France 88bp (+1)
  • Egypt 355bp (+18), Tunisia 175bp (+5), Morocco 170bp (+5), Saudi Arabia 107bp (-1), Bahrain 232bp (-2), Qatar 96bp (-1), Lebanon 350bp (-5), Israel 135bp (+3)

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