No-one likes to kick a financially engineered monoline-cum-CDO super-fund of dubious sovereign debt when it’s down.
Aside from Moody’s, that is.
In its latest weekly credit outlook, published Monday, the rating agency includes a neat chart showing how EFSF spreads have widened relative to the spreads of its AAA-rated guarantors (click to expand).
This, of course, shouldn’t happen:
The rise in EFSF spreads is an important signal because it reflects a rise relative to the spreads of its Aaa-rated guarantors. In theory, EFSF spreads should be below the weighted average spread of its Aaa-rated guarantors, since EFSF issuance is 100% covered by guarantees from Aaa-rated sovereigns and also benefits from guarantees from non-Aaa-rated member states and from the underlying borrower’s repayment obligation.
CDS written on the EFSF have also been ‘trading’ wide relative to AAA credits (in our wild approximations, that is).
Is the revamped EFSF over before it’s begun?
Possibly. Breaking at pixel time:
Monday, November 14, 2011 12:38:07 PM RTRS – GERMAN FINMIN SCHAEUBLE SAYS IT MAKES SENSE TO ACTIVATE EUROPE’S ESM BAILOUT MECHANISM BEFORE MID-2013
Monday, November 14, 2011 12:38:38 PM RTRS – GERMAN FINMIN SCHAEUBLE SAYS WANTS CHANGES TO EU LISBON TREATY BY END OF 2012
Monday, November 14, 2011 12:40:46 PM RTRS – GERMANY’S SCHAEUBLE TELLS REUTERS EU STATES THAT DO NOT WANT TO PARTICIPATE IN TREATY CHANGE SHOULD ALLOW 17 EURO ZONE STATES TO PROCEED
Related links:
Presenting… the ESM Treaty – FT Alphaville
Euro Crisis: Know Your EFSF From Your ESM? – Sky News
Moody’s Says EFSF Unable To Support EU Bonds, Sends EURUSD Lower - Zero Hedge