Those rascal short sellers are at it again, daring to ask awkward questions of the European project. This time the manifesto comes from New York based Tortus, who have a plan to “rehabilitate” Portugal. (H/T @Pawelmorski and @IyerC).
Before rehabilitation, however, there must come acceptance, and Tortus is short “certain Portugese sovereign bonds” because it does not think the status quo is sustainable. Read more
Just to put an already-huge year-end move in Portuguese bond yields into some wider context…
Here’s a chart (via Reuters) of the five-year yield since August 2010 — to which levels it’s now, roughly, returned. Click to enlarge.
A useful chart from Citi on Thursday morning (which you may click to enlarge), on the recent rise in bank holdings of sovereign debt. Read more
And could it be a job for the special one?
A republic since 1910, Portugal elects its President every five years and the next election is not until 2016. But EconoMonitor floats an interesting idea, while considering the possibility of a monarch for the former kingdom. Read more
Here’s Portugal’s 10 year benchmark punching through 8 per cent to start your morning. We’d note it was sitting at 6.4 per cent on the 1st of this month…
To lose one cabinet minister is bad luck, to lose two in two days… means… time for another eurozone peripheral crisis? The resignation of Portugal’s foreign minister Paulo Portas yesterday has everyone worried, because of his role as leader of the CDS-PP, the junior partner in the governing coalition. If CDS-PP withdrew their support, the government would be left with 108 seats in a 230-seat parliament and uncertain prospects for scraping together a majority.
And all this less than two weeks before a troika delegation is due to start their next review of the economy as the lenders consider whether Portugal will get an easing of terms on its 2011 €78bn bailout, and receive the next €2bn instalment. Read more
Nothing like taking the long view – such as this snapshot of Spanish, Portuguese and Italian 10 year paper, over 150 years. Click to enlarge
Bond yields in the eurozone are hitting new lows not seen since 2010…
Angela Merkel visited Portugal on Monday to give a message of “tough love”, as the FT put it:
The German chancellor praised Lisbon for the “courageous way” it had implemented deficit-reduction measures, saying there was “at the moment no reason to renegotiate” the adjustment programme… Read more
The IMF reckons Portugal’s economy will shrink 1 per cent next year. That compares with an estimated contraction of 3.7 per cent this year and a 1.7 per cent fall last year. Meanwhile, the OECD has just declared recession in Portugal to be ‘losing intensity.’ Read more
That’s Portugal’s 5-year CDS back below 500bps for the first time since March 2011 (we threw in Spain and Italy too as they have tightened a fair bit
and we had load of chart space). Click to enlarge, data via Markit:
“Was today the day that the Portuguese PSI began?,” Macro Man asks, of the OMT.
They’re noting something curious about ECB seniority in light of Thursday’s revelations about the OMT. The ‘technical features’ confirm that the OMT will receive equal treatment with ordinary bondholders if a eurozone sovereign restructures its debt. But, in the Q&A, Draghi also confirmed that the old SMP bond holdings will remain senior. It will be first in the queue, ahead of bondholders and the OMT. Read more
Draghi-day is just around the corner and JPM’s Malcom Barr is of the opinion that the ECB might just kick off its move by purchasing short-dated Portuguese sovereign debt.
Heck, why not? The arguments to intervene are simple enough. Read more
Chalk this one up to the ‘second bailout, no PSI‘ trade, maybe — Portuguese government bonds have been a top performer so far this year.
So, as for that second bailout… Read more
9 July 2012
Eurogroup Statement on the follow-up of the 29 June Euro Summit Read more
We take our headline from Sharon Bowles MEP.
The Member of the European Parliament was talking to Public Service Europe about this ominous move in transparent sovereign accounting: Read more
This delightful misstep was pointed out by Ralph Atkins over at FT Money Supply. Apparently in the rush to distance Belgium from any suspicion of Emergency Liquidity Assistance, Luc Coene, Belgium’s central bank governor may have turned snitch on Portugal.
As Ralph notes, we know ELA, which is essentially a bank bailout by national authorities when things get really, really bad, has been heavily used in Greece and Ireland. Read more
Here’s a nice, Portugal-themed chart from Gabriel Sterne of Exotix.
It’s all about stock-flow adjustments, or SFAs — the curious cases when a government’s stock of debt increases without a corresponding change in its deficit to explain it.
Attached to its most recent release on EU debt and deficit numbers, Eurostat has penned quite an interesting note on how these SFAs work (while pointing out that SFAs “have legitimate accounting explanations”). Hat-tip the WSJ’s Charles Forelle. Read more
Something you will never ever read in an IMF report on Greece…
Subordination of private bondholders by the official sector is already very acute. This means that the more a PSI exercise is delayed, the higher the haircut on the notional needs to be for a given level of debt relief. Consequently, the sooner a PSI exercise happens, the better…
Not Greece 2011, but Portugal 2012. Read more
This is, as the FT reports, quite a curious decision by the European Central Bank’s Governing Council (which met this week):
(Click image for full doc. It amends the ECB’s breakthrough decision in December which expanded its collateral eligibility rules to include “additional credit claims”.) Read more
Just a curio, given that all other sovereign eurozone debt was tightening on Wednesday. Here’s Portugal’s 5 year paper (the ECB has bought, subordinated — what have you — in the market on Wednesday, Reuters said):
Citi analysts have attempted to explain the Portugal enigma, which they note now has the country’s 10-year bonds trading at some 1,000 basis points above Bunds.
The reason, Jurgen Michels and team say, is simply that the country is not on a sustainable fiscal path: Read more
Update — apologies for a rather disorganised (and long) post… but we’ve finally gained information from all seven eurozone central banks who’ll accept additional credit claims under the ECB’s new rules…
Lend to an Italian small business for five years, take the loan to the Bank of Italy for ECB three-year funding… get this kind of haircut: Read more
We’re sticklers for this stuff — but it’s an important point by Societe Generale’s analysts on Tuesday: (click charts to enlarge)
Stocks, eurozone government bonds and the euro started the week under pressure while US Treasuries rose, as investors awaited details of Greece’s debt restructuring and European Union leaders met in Brussels. In addition, a full return to action for Asian markets, after the lunar new year holiday, delivered a downbeat tone, with investors disappointed that the Chinese authorities have not eased monetary policy in the manner some had expected, and as the region got its first chance to price in softer than forecast US fourth-quarter GDP data, according to the FT’s Global Markets Overview. The FTSE All-World equity index is down 0.7 per cent and the FTSE Eurofirst 300 is enduring a loss of almost 1 per cent as traders shift some funds away from growth-focused bets, after their recent good run, and into perceived havens. Wall Street’s S&P 500 retreated 0.3 per cent to 1,312.78, paring losses after bouncing off the 1,300 mark. The FT separately reports that a jump in Portugal’s borrowing costs also shook markets as the country’s bond yields reached new euro-era highs as many investors priced in a Lisbon default amid fears its debt holders could suffer heavy losses once a restructuring deal with Greece is agreed. Bloomberg reports that Greece faced criticism at the summit in Brussels for not implementing reforms and austerity plans promptly enough.
Something to note about these Portuguese bond prices… (via Reuters)
When a sovereign or corporate becomes sufficiently distressed, a flip can happen in the way the credit default swaps are quoted. According to Markit, this is happening with Portugal now, with the CDS moving from being quoted in conventional spread to upfront. This is, in some ways, a worse omen than the credit deterioration itself.
It’s the conventional spread format that’s making headlines at the moment. Trampling previous highs, the CDS has broken into uncharted territory (in the figurative sense only, as here is a chart, courtesy of Markit): Read more