Tag Archives: Markit Group

Deadline in Athens (Updated)

The result of the voting in the Greek parliament over renewed confidence to Prime Minister George Papandreou is waited any time soon now. Today’s trading session in the credit market insinuate that investors already seem to be pricing in a victory for the beleaguered Greek minister.

“Papandreou has to survive a vote of no confidence, due around midnight tonight.”

Gavan Nolan

The political future of George Papandreou may be in doubt but the markets seem to be pricing in a victory for the beleaguered Greek prime minister, according to Markit Financial Information.

Euro zone finance ministers put the onus back on the Greek political establishment yesterday when they said that they would refrain from disbursing the next tranche of aid until the next round of austerity measures had been passed.

Before that, more obstacle is to be  faced later this month.

“Papandreou has to survive a vote of no confidence, due around midnight tonight. His reshuffle last week, in which he promoted his main rival Evangelos Venizelos to finance minister and deputy PM, seems to have placated his critics within the socialist PASOK party and made his position less precarious,” credit analyst Gavan Nolan writes in Tuesday’s Intraday Alert from Markit.

Pointing out: “Most Greek political analysts expect a slim victory for Papandreou tonight, and that was enough to trigger a bout of short covering.”

The Markit iTraxx SovX Western Europe index was 13 basis points tighter at 211 bp’s, reversing much of the recent widening (it was as wide as 240 last Thursday).

“This had the typical knock-on effect on financials, and that in turn helped the Markit iTraxx Europe rally 4 bp’s to 107.25. We will see whether the rally has legs tomorrow if indeed Papandreou survives the no confidence vote,” Nolan writes.

SABMiller was comfortably the worst performer in the corporate market today after it made a $9.5 billion takeover bid for smaller Australian brewer Foster’s Group.

The offer, representing an 8.2% premium to Foster’s Monday closing price, was rejected by the target company.

“It is entirely possible that this is just the opening gambit from SABMiller, and it could return with an improved offer,” Nolan notes.

Other major brewers could also enter the fray.

That prospect didn’t seem to enamoured the credit markets, where SABMiller’s spreads promptly widened by nearly 20 bp’s to close around 100.

The deal will be financed by existing cash and new debt facilities, and this will have a detrimental effect on the balance sheet.

Sino Forest’s bonds plunged even further today after it was revealed that the company’s largest shareholder, hedge fund Paulson & Co, had sold its entire holding.

It suffered another blow when Fitch cut its rating to BB– from BB+, the agency citing the company’s complex capital structure.

Sino has seen its credit spreads widen sharply since it was targeted by short seller, who highlighted apparent inconsistencies in the company’s reporting.

It’s 6.5% 2017 bond is now trading at 40 – it was trading at 94 at the beginning of this month.

The ISDA Determinations Committee ruled today that a failure to pay credit event had occurred in respect of Irish bank AIB.

“This supersedes the earlier ruling that a restructuring credit event had occurred. A credit event auction for senior and subordinated CDS will be held in due course,” Gavan Nolan concludes.

JUST BREAKING:

REUTERS: The Greek government won a vote of confidence early Wednesday, overcoming a first hurdle in winning new financing to avoid bankruptcy.

More than half the deputies in the 300-strong parliament backed the socialist government of Prime Minister George Papandreou, who reshuffled his cabinet last week to stiffen resolve behind a painful new austerity program.

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Credit; Cras Credemus

The investor sentiment in the European credit market suddenly changed on Monday afternoon. Whether it’s just another dead cat bouncing, or investors really see the situation improving, we will find out tomorrow as Greek Prime Minister George Papandreou face a vote of no confidence.

“The catalyst for the change in sentiment seemed to be the announcement that the potential lending capacity of the European Financial Stability Facility (EFSF) will be raised to EUR440 billion. “

Gavan Nolan

The markets expectations for the Eurogroup meeting culminating Monday was never particularly high, but it still proved a disappointment to many. Spreads opened this week wider when it became clear that the euro zone’s finance ministers would not be signing off on the next EUR 12 billion tranche of Greek aid. However, something changed during the trading session.

The Eurogroup confirmed that they would not disburse the funds until the Greek parliament had passed the latest austerity programme proposed by the government.

This wasn’t a surprise to many market participants – noises from the IMF and EU last week suggested this was likely to be the case.

“Nonetheless, the lack of movement and the immense pressure on the Greek government to deliver – prime minister George Papandreou face a no confidence vote tomorrow – was always going to weigh on risk assets,” credit analyst Gavan Nolan at Markit Credit Research writes in today’s Intraday Alert.

But it didn’t turn into a rout, and by late afternoon the market had recovered from the earlier widening.

Sovereigns were still underperforming but at the close the Markit iTraxx SovX Western Europe index was just 1 basis point wider at 223,5 bp’s.

The catalyst for the change in sentiment seemed to be the announcement that the potential lending capacity of the European Financial Stability Facility (EFSF) will be raised to EUR 440 billion, according to Markit Financial Information.

This will be achieved by increasing the amount of guarantees from euro zone member states to EUR 780 billion.

“The restricted lending capacity of the EFSF – due to the AAA rating requirement and the consequent overcollaterisation – has been an issue for the markets, and the fact that the authorities are at least putting measures in place for further bailouts will ease some near-term concerns,” Gavan Nolan writes.

Adding: “Also of importance was the related announcement that the European Stability Mechanism, which is to succeed the EFSF in 2013, will not enjoy preferred creditor status.”

Many though that the preferred status would make it more difficult for countries that tapped the facility to return to the private capital markets.

There was also uncertainty in the market over whether the legal subordination of existing bonds could trigger a credit event.

“Clarification on this issue is therefore to be welcomed,” Nolan comments.

Italy’s spreads were under pressure today after Moody’s placed the country’s Aa2 rating on review for downgrade late on Friday.

The agency highlighted Italy’s well known structural problems – low growth, low productivity and inflexible labour markets – as well as the dangers from the escalating euro zone debt crisis.

In contrast, Moody’s today upgraded Brazil’s rating one notch to Baa2, citing the government’s conservative fiscal policies.

The credit markets have reflected Brazil’s prudence for some time.

“Indeed, the Latin American sovereign has traded tighter than higher rated Italy for over a year,” Gavan Nolan at Markit concludes.

On the personal account, an old latin expression comes to mind;

Cras Credemus, Hodie Nihil – Tomorrow We Believe, But Not Today.

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Capitulation in the Credit Market

“The state of the sovereign CDS market today could only be described as one of capitulation,” Markit Credit Reasearch writes in Thursday’s Intraday Alert. For those who still don’t belivie in the contagion effect, and the possibility of both financial and social unrest spreading from the peripheral Europe into the euro zone core; be prepared for the worst.

“Records for spreads have been broken with regularity in recent days but today they were shattered.”

 Gavan Nolan

The Markit iTraxx SovX Western Europe index, which widened by 14.5 basis points, to 240 bp’s  this morning. Less than two weeks ago it was trading at 186 – a move of more than 50 points. The turmoil in the sovereign market had a direct impact on the broader credit markets, with the Markit iTraxx Europe widening 6 bp’s to 116, its widest level since November 2010.

Credit analyst Gavan Nolan at Markit comments:

“The state of the sovereign CDS market today could only be described as one of capitulation. Records for spreads have been broken with regularity in recent days but today they were shattered.”

And, of course, spreads in the peripherals continued to widen into unchartered territory:

Greece  – 1,900 bp’s, + 174 – went even further into the stratosphere, its spreads touching almost 2,000 basis points.

“The disunity within the EU corridors of power, as well as the political and social upheaval in Greece, has shaken the markets. Investors have been alarmed that the two factions – Germany and its allies on one side, France and the ECB on the other – have been unable to reconcile their differences,” Gavan Nolan writes.

But news emerging this afternoon suggests they will be given more time.

Financial Times reportes that the EU had reached a deal with the IMF that will see the disbursement of the next EURc12 billion to Greece without an agreement on a new bailout.

Previously the IMF had insisted that a bailout agreement was a necessary condition for its cooperation.

The news helped spreads recover some ground in the afternoon, according to Markit Credit Reasearch.

But the recovery was modest, and a closer look at the reported terms of the deal revealed why:

EU Commissioner Olli Rehn made it quite clear that the disbursement would not happen if the Greek parliament did not pass new austerity measures agreed by the government last month.

“Familiarity with the current Greek political situation will show that this is far from a foregone conclusion,” Nolan points out.

The Greek prime minister George Papandreou is fighting for his political life after he failed to forge a government of national unity yesterday.

Several senior members of his cabinet have resigned and Papandreou is now facing a no confidence vote.

“This political instability is heaping even more pressure on Greece from the capital markets, making further spread volatility all but inevitable.”

Portugal (810, +21) and Ireland (805 bp’s +34), the two countries viewed as the next most vulnerable by the markets, also widened sharply.

This is now an established pattern given the sovereigns’ reliance on external agencies for funding.

Spain (300 +13) saw its spreads widen to over 300 bp’s for the first time since January this year.

The Iberian country is widely perceived to have decoupled from the other peripherals, and its spread performance reflects this.

However, the plight of Greece and the panic in the sovereign market has brought the risk of contagion to the fore again.

“This is the real risk that the market fears, and the Spanish CDS is a good a gauge as any of this fear. Investors know that a Spanish bailout would be of a different order altogether to those that have passed thus far. Weak demand for Spain’s bond auction today suggests that the decoupling theory has its doubters,” Gavan Nolan writes.

The recent volatility in the sovereign market has resulted in liquidity being concentrated in the index, i.e. the Markit SovX WE.

“Volumes were almost twice the monthly average yesterday and its is likely that they are high today. A large positive skew has opened in recent days, again indicative of participants preferring the liquidity of the index to the patchy single names,” Nolan concludes.

Check out Gavan Nolan’s in-depth analysis of the euro zone troubles, published in the last issue of Markit Magazine.

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