Tag Archives: Standard & Poor’s

“Split-Rated” – New Econo-parody Song

Versusplus.com are kicking off the autumn  season with a clean goal, straight into the upper corner: “Split-Rated” is a song about the newly emerged strange situation of the US credit ratings. Enjoy!

“We’re standard and we’re poor.”

www.versusplus.com

Here’s the song about Standard & Poor’s downgrade of the US credit rating, and the peculiar fact that other rating agencies are keeping the originnal triple-A.

“Split-Rated” are written and sung by Curtis Threadneedle, Marcy Shaffer  at http://www.versusplus.com, and Merle Hazard at http://www.merlehazard.com.

Sing along!

Watch “SPLIT-RATED”: on YouTube @ http://youtu.be/eaNDQD_WFIE, and on versusplus.com, with text of lyrics, @http://versusplus.com/split-rated.html

MORE econoparody songs at iRock.

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Italy And Spain Damage Investor Sentiment

Appetite for risk dissolved today in the face of yet more sovereign debt concerns and worrying economic signals. It was the two countries regarded as the safest of the “PIIGS” – Italy and Spain – that damaged sentiment, according to Markit Credit Research.

“With a general election in Portugal next month and local elections in Italy, political instability could yet create more spread volatility over the course of the year.”

Gavan Nolan


With Europe in a total financial chaos, without someone to lead the economic rescue operations, it’s no wonder investors are a bit sceptical. Another round of bad news sort of nailed the day in credits, Monday.

Late on Friday S&P placed Italy’s “A+” rating on negative outlook, citing the “heightened downside risks” in the government’s debt reduction programme.

Specifically, the agency highlighted the country’s weak growth prospects and the lack of political commitment to reducing the public debt burden (about 120% of GDP).

S&P did acknowledge that Italy’s budget deficit was smaller than the other peripheral euro zone countries, and that its banks have better quality balance sheets.

“These two factors help explain the relative stability in Italy’s spreads compared to the other peripherals,” credit analyst Gavan Nolan at Markit Credit Research writes in his Intraday Alert.

Adding: “Spain is not fortunate enough to be able to claim the same, and its economic problems are causing problems for the government.”

Over the weekend, the incumbent Socialist Party suffered a major defeat in regional and local elections, including the loss of strongholds such as Barcelona and Castilla La Mancha.

While a resounding defeat was expected, the result showed just how difficult it will be to maintain social unity in a time of austerity, Nolan points out.

There is talk of bringing forward the general election to this year, though this has been dismissed by prime minister Zapatero.

“With a general election in Portugal next month and local elections in Italy, political instability could yet create more spread volatility over the course of the year.”


The events in Italy and Spain temporarily took attention away from Greece.

“But the fate of the Hellenic Republic is central to how the debt crisis will unfold, and the uncertainty surrounding the country is set to shape sentiment until the denouement, whenever that may be,” Gavan Nolan writes.

The government met today to approve a fifth austerity plan, and there are reports that the EU and IMF will require them to quicken the pace of state assets sales in order to receive bailout funds.

“The country’s capacity to withstand yet more austerity is questionable and is only likely to heighten speculation around debt restructuring,” the Markit analyst states.

Away from the travails of the periphery, markets were also troubled by disappointing economic leading indicators.

The preliminary estimate of the Markit/HSBC China Manufacturing PMI showed that the world’s second-biggest economy is continuing to cool.

“The index dropped to 51.1 in May, a 10-month low, and added to fears that monetary tightening could lead to sharp slowdown,” Nolan comments.

Germany, another of the world’s growth engines, also saw its rate of expansion slow.

The Markit Flash Composite PMI came in at 56.4, still indicating growth but the lowest reading since October 2010.

“Signals that China and Germany are running out of steam will put even more emphasis on the US and the ISM number at the beginning of next month,” Gavan Nolan concludes.

Click to enlarge

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Greek CDS Spreads Jump To World Record

Nice work! Ladies and gentlemen off the exclusive core EU administration. Thanks to your ridiculous attempt to calm the financial markets by lying, you’ve just made the whole situation worse – for both Greece and all other members of the EU community.

It seems clear that Greece won’t be in a position to return to the capital markets next year, leaving a funding gap in the region of EUR25 billion.

Gavan Nolan

Late last Friday there were reports that Greece was considering plans to leave the euro zone. Jean-Claude Juncker, chairman of the eurogroup of finance ministers, called the rumours “stupid,” and others denied the fact that there was an extraordinary meeting going on. I generally advice people to not use the word “stupid.”

In the credit market risk appetite was on the retreat Monday, though unlike last week commodity prices weren’t the instigator.

It was – not surprising – the familiar and escalating euro zone sovereign debt crisis that triggered negative sentiment.

A crisis that now is about to turn into a political crisis, too.

It emerged over the weekend that a “secret” meeting of finance ministers and senior EU officials had been held on Friday, and Juncker acknowledged that Greece would need further financial assistance.

A restructuring of Greek debt wasn’t discussed, according to reports.

But though there is little chance of haircuts being inflicted on bondholders in the near future, a “soft” restructuring of voluntary maturity extensions is seen as a possibility by many in the market. This would buy some more time for Greece, although it would have little impact on solvency unless the maturity extensions were very long, credit analyst Gavan Nolan at Markit writes in his Intraday Alert.

And S&P seemed to agree. This afternoon the agency downgraded Greece’s long- and short-term ratings to ‘B’ and ‘C’ from ‘BB-’ and ‘B’ respectively.

S&P cited the “increasing sentiment” among euro zone creditors to extend maturities on the bilateral loans pooled by the EC. In S&P’s opinion, the creditor governments would probably seek comparability of treatment from commercial creditors, i.e. a similar maturity extension, according to Gavan Nolan.

The Greek government was quick to respond, stating that the agency is basing its decisions on market rumours and as such its “validity is seriously cast in doubt”.

The usual suspects.

But it seems clear that Greece won’t be in a position to return to the capital markets next year, leaving a funding gap in the region of EUR25 billion, Nolan points out.

Greek officials have admitted that it will have to use the EFSF to raise funds, and there is considerable uncertainty over what other measures could be taken.

Regardless of the merits of S&P’s decision, the CDS market’s view on the sovereign credit is emphatic. Its one-year spreads are trading in excess of 2000bp and its five-year spreads are around 1375bp, the widest of any sovereign in the world, Nolan concludes.

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  • Markit iTraxx Europe S15 98.5bp (+2.75), Markit iTraxx Crossover S15 360bp (+7)
  • Markit iTraxx SovX Western Europe S5 197bp (+8)
  • Markit iTraxx Senior Financials S15 140bp (+7), Markit iTraxx Subordinated Financials S15 242bp (+12.5)
  • Sovereigns – Greece 1375bp (+58), Spain 259bp (+16), Portugal 658bp (+26), Italy 165bp (+12), Ireland 680bp (+25)

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