…Because European bond yield spreads really were on tenterhooks on Tuesday, after a Fitch analyst commented on the continent’s shaky AAA sovereigns.
As Reuters flashed at the time:
RTRS-RPT-GREEK/GERMAN GOVERNMENT BOND YIELD SPREAD WIDENS 7 BPS to 295 BPS AFTER FITCH COMMENTS
RTRS-RPT-SPANISH/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS 6 BPS TO 74 BPS
RTRS-RPT-PORTUGUESE/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS 5 BPS to 117 BPS
Not the end of the world, then. But it’s a little taster of the markets’ intense focus on the fiscal austerity plans that European governments have been talking up – and will soon have to walk the walk on.
As Reuters reported on Fitch’s view of Spain and Portugal:
Spain’s strong fiscal adjustment programme is a positive for the country, Fitch ratings agency said on Tuesday, but added Portugal’s gradual approach to fiscal consolidation was a concern.
“(Portugal’s) pedestrian approach is a concern for us, certainly in the context of weak economic growth,” Fitch analyst Paul Rawkins told a conference in London.
The stakes are high. Although do note that Bulgaria has decided to stick it to the Great Fitch Empire.
Even Fitch’s good news on had a tinge of passive-aggressiveness to it. As iMarket News reported:
Fitch Ratings’ Greece Analyst Chris Pryce said that while the short-term outlook for the country is “probably ok”, in the long-term (ie the next 6-9 months) there remain “concerns”, he added……But the ratings organisation cast doubt on whether the EU could proceed with a bailout, warning that the German Constitutional Court could provide one obstacle to an EU rescue, given the resistance of the German populace to any Greek rescue.
“The IMF could be better placed than EMU to deliver and this route would circumvent constraints under the No Bailout Clause,” Fitch stated.
We can only wonder what French and German leaders, who proposed a no-IMF-necessary European Monetary Fund at the weekend, will make of that last tidbit.
Related links:
Austerity, Portuguese style – FT Alphaville
CDS report: Austerity, the stoic injunction – FT Alphaville
The European Central Bank gets Moody – FT Alphaville