Tag Archives: Irish people

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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Filed under International Econnomic Politics

The Fear Is Still Out There

There’s a lot of things to be said about fear; fear in general and fear as a driving force in the financial markets. Some say the fear is the only driving force in the market – the fear of losing money and the fear of underperforming ones competitors. The first kind should restrain investors from taking too much risk, the other should (in theory) increase their risk appetite. In other words; fear amongst market participants is really a good thing. But the central banks have in reality more or less eliminated the risk element with its quantitative easing policy. So, why is fear still an issue?

“Spreads opened wider this morning, with Ireland and the threat of contagion across the euro zone’s periphery continuing to incite risk aversion.”

Gavan Nolan


The Markit iTraxx SovX Western Europe index hit 187 basis points, Wednesday, another all-time-wide, as investors are said to fear the contagion of debt problems from one country to another.  Credit markets recovered in the afternoon after a shaky start, but the ongoing peripheral concerns ensured that they underperformed their counterparts in equities.

CDS spreads opened wider Wednesday  morning, driven by Portugal and Spain, with Ireland and the threat of contagion across the euro zone’s periphery continuing to incite risk aversion, according to Markit Financial Information Service.

Ireland’s rating was downgraded two notches to A from AA- by S&P’s Tueasday evening, the agency citing the rising cost of bailing out the country’s banking system.

Ireland’s spreads have been trading in junk territory for some time but the downgrade only added to the negative sentiment, credit analyst Gavan Nolan at Markit Credit Research writes in Wednesday’s Intraday Alert.

The government’s “National Recovery Plan”, a four-year plan inflicting yet more austerity on the Irish people, was unveiled today. It amounts to a EUR15 billion fiscal tightening; EUR10 billion in spending cuts and EUR5 billion in tax hikes.

“But whatever the merits of this policy – and many doubt its efficacy and its optimistic growth assumptions – there is considerable uncertainty over whether it will be implemented at all. The government’s position is precarious and it will have difficulty getting the necessary votes to pass the December 7 budget,” Nolan points out.

The Irish CDS’ are now trading with spreads around 590 bp’s, similar to pre-bailout levels.

“Contagion was still the buzzword today and this was reflected in sovereign spreads this morning,” Markit’s analyst notes.

The Markit iTraxx SovX Western Europe index hit 187bp, an all-time record, driven by Portugal and Spain.

The Iberian countries are viewed by the markets as being the next most vulnerable to a debt crisis. However, they recovered later in the day, but remain at unpleasant high levels.

And financials continued to underperform amid sovereign volatility and concerns over burden sharing – or the possibility of being bailed in, instead of out.

I guess that’s where the real fear is…

Anglo Irish Bank’s debt exchange was deemed a restructuring credit event by the ISDA DC today, and a credit event auction will follow in the coming weeks.

“Risky assets enjoyed a stronger afternoon, helped by a plethora of economic data,” Gavan Nolan writes pointing to the US weekly jobless claims that came in better than expected, as did UofM consumer confidence.

New homes sales and durable goods figures were less impressive but investors were ready to put them aside ahead of Thursday’s US holiday.

“With US news likely to be minimal over the rest of the week, events in the euro zone should shape spread direction on probable low volumes,” Gavan Nolan concludes.

When it comes to fear in general, the wise men says it’s all in the mind, and that there’s nothing to fear but fear itself.

Obviously, most investors thinks that’s all just bull-shit.

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Ireland: "We Have Surrendered Our Sovereignty"

The Irish-EU bailout talks in Brussels have really upset the Irish people, at least the people of The Irish Times, who writes in an editorial Friday that the country now have surrendered its sovereignty to the European Commission, the European Central Bank, and the International Monetary Fund. Others call for prime minister Brian Cowen to resign.

“Politicians should certainly share some of the blame for Ireland’s ignominious position.”

Gavan Nolan


The Irish government has pledged to publish its four-year budget plan early next week as talks continue with IMF and EU officials in Dublin over a rescue package for Ireland, running into tens of billions of euro. Commentators call the whole thing a “shame,” while prime minister Cowen rejects the calls for his resign.

The dozen-strong IMF delegation includes several banking experts who are taking part in the discussions with more than 20 officials from the European Central Bank (ECB) and the European Commission and Irish officials at various locations in Dublin.

Prime minister Brian Cowen said Friday the talks were “going well in terms of being open and constructive,” saying the Government was conducting the talks “in a way for which the best outcome for Ireland can be achieved.”

Mr Cowen also rejected Opposition calls for him to resign, The Irish Times reports.

“The Government has a job to do here. We have a four-year plan that we are finalising which we are required to do,” he said. “We have a Budget to bring forward on 7th December. We believe we have a majority for that Budget and we have a job to do in relation to ensuring that the present issues affecting the euro, and as it is affecting Ireland, are resolved,” he says.

The Irish Times, however, makes a devastating attack on Cowen and his government in an editorial Friday morning.

“There is the shame of it all. Having obtained our political independence from Britain to be the masters of our own affairs, we have now surrendered our sovereignty to the European Commission, the European Central Bank, and the International Monetary Fund,” the newspaper writes, referring to the impending bailout – or loan, as the government would prefer to call it.

Prime minister Brian Cowen, fighting for his political life, commented: “I don’t believe there’s any reason for Irish people to be ashamed and humiliated”.

The sight of the IMF delegation arriving in Dublin have left many with mixed emotions.

“While politicians should certainly share some of the blame for Ireland’s ignominious position, it is the banks that are viewed as the prime instigators of the country’s slump,” credit analyst Gavan Nolan writes in Friday’s Weekly Credit Wrap from Markit.

The cost of supporting the sector has pushed Ireland’s budget deficit to a projected 32% of GDP this year.

Anglo Irish Bank is now 100% owned by the state and Allied Irish Bank is approaching that status.

“The latter bank posted an interim trading statement today, and it confirmed what the markets had feared. AIB has haemorrhaged EUR13 billion euros in customer deposits since the start of the year,” Gavan Nolan notes.

“This wasn’t a great surprise given the deposit withdrawals reported by Bank of Ireland and Irish Life & Permanent earlier this week. But it underlined the dependence of the Irish banks on funding from the ECB, a fact that is integral to the pressure being placed on Ireland to accept external assistance.”

AIB’s subordinated bonds dropped sharply after the news.

Subordinated debt was already falling in value following the “yes” vote for Anglo Irish’s debt exchange. This vote wasn’t for the exchange itself but a change in the terms that will allow the exchange to proceed.

Prices for lower tier 2 bonds were declining across Irish banks and elsewhere in Europe amid fears that such punitive exchanges could be implemented in other countries.

“It might be asked why bonds are being used as an indicator of sentiment rather than CDS. The derivative is often more liquid than the underlying bonds and thus more reliable. Often, but not always,” Nolan points out.

The chart above shows the number of subordinated CDS daily quotes received by Markit’s parsing service over the last few months.

It is clear that there has been a marked drop in recent weeks, particularly in AIB.

In truth, the Irish banks have never been among the most liquid in Europe.

But all three banks now have Markit Liquidity Scores of “4”, the second worst ranking.

“Liquidity has evaporated in tandem with the banks’ credit deterioration,” Gavan Nolan comments.

The bonds, on the other hand, paints a different picture. The number of weekly quotes for the three most liquid subordinated bonds issued by the banks has been on the rise in recent weeks.

“All have Markit Liquidity Scores of “1”, the highest ranking. This indicates that trading activity is centred on the bonds and in this case therefore they are better indicators of sentiment than the CDS,” Nolan writes.

But it’s the opposite for the Irish sovereign, which has highly liquid CDS.

Reports suggest that the EU/IMF delegation will reach an agreement with the government next week, according to Markit.

But the weekend will no doubt be a maelstrom of rumours and comment from undisclosed sources about the government’s four-year plan, which promises yet more pain for the Irish people.

“The soul-searching has just begun,” Gavan Nolan concludes.

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