Greece five-year spread to bunds: +15bps 1232bps
Portugal five-year spread to bunds: +18bps to 522bps
And Spanish bonds — well, they were pretty much unchanged on the day.
That’s an odd non-movement given that the biggest eurozone news of the day was Moody’s downgrade of Spain, and its bank rescue fund. Plus the publishing of the Spanish Kingdom’s own €15.5bn estimate of capital shortfall at its banks.
Why are investors so seemingly nonplussed?
Here’s Deutsche Bank’s Jim Reid with some comment:
Talking of Spain, the most common question we’ve had all week (internally and externally) has been why are markets so sanguine about the continued deterioration in the European Peripheral market? Recent macro weakness in markets has almost predominantly been about Oil and the Middle East and very little about Europe. We’ve also been surprised that the market has been relatively calm but probably put it down to two main reasons. 1) There is a belief in the market that even if it is arduous, drawn-out and only occurs when markets are on the brink, eventually the EU will act aggressively to protect those countries with any funding troubles. Indeed the biggest spread weakness of late has focused on Greece, Ireland and Portugal. The first two have funding in place for at least 2 years and Portugal could take this funding at any point if it so chooses. The widening in these names is as much about the creeping risk of future restructuring beyond the tenor of the EU/IMF facilities. This means these issues are rolling ones rather than immediate destabilising funding ones. 2) Spain has de-coupled away from Peripheral spreads over the last 2 months as the data edges higher and the necessary internal reform programs seem like they are getting some traction. The reality is that Spain’s funding is the swing factor between the Peripherals being an ugly sideshow and a huge Global macro event.
No kidding.
Related links:
More color on Spain, the cajas and Moody’s downgrade - Credit Writedowns
Spanish banking negativity – FT Alphaville
Spain is all about the banks - FT Alphaville