Thread: Portuguese, Spanish Bonds Smacked on Sovereign Debt Financin

Thursday, January 06, 2011 2:19 PM

Portuguese, Spanish Bonds Smacked on Sovereign Debt Financing Concerns; Euro Flirts with December and Mid-September Lows

Portuguese and Spanish 10-year bonds are getting smacked hard as refinancing needs mount. Greek yields are at all-time highs and a milder (for now) selloff continues on Belgian and Italian bonds as well. A flight to safety on German bonds is again in play, with German 10-year yields dropping slightly. The Euro once again flirts with December and Mid-September lows.

Bloomberg reports Portuguese, Spanish Bonds Decline Amid Debt-Auction Speculation http://noir.bloomberg.com/apps/news?pid ... gPZXOZ5WLY

The extra yield investors demand to hold Portuguese securities rather than benchmark German bunds widened to the most in a month as the IGCP debt office announced the sale of 2014 and 2020 debt, scheduled for Jan. 12. Belgian bonds tumbled after the nation’s political leaders failed to restart seven- party negotiations to form a government. German bunds rose.

“The underlying story behind this slide in Portuguese government bonds is supply-related,â€

Thursday, January 06, 2011 2:47 AM

EU Commission Plans Haircuts on Bank Debt; Greek Yields Hit New Record; China Buys Spanish Debt; German Courts to Decide Bailout Constitutionality

A European commission has come up with a new proposal to shield taxpayers from the banking crisis via haircuts in senior bank bonds. The proposal only covers bank debt, not sovereign government debt, and supposedly it applies to some mythical time in the future, not now.

However, sovereign yields have hit new record highs in Greece, and are close to record highs in Portugal, Spain, and Ireland, I fail to see how the crisis can possibly be contained, and I fail to see why it takes a commission to decide that bank bondholders need a haircut. It should be perfectly obvious there is no other possible solution. The big fear is haircuts spread to sovereign debt.

It's time to put the fears away and concentrate on the reality. Sovereign debt haircuts are coming. With that backdrop, please consider the Telegraph article EU plans for bondholder haircuts unsettles debt markets by Ambrose Evans-Pritchard. http://www.telegraph.co.uk/finance/fina ... rkets.html

Michel Barnier, the single market commissioner, will publish a “consultation paperâ€