The past week was relatively calm with the exception of Portugal and Greece, which dominated economic and financial news. Some apparent relief might have come from
- Meeting of the Council of Ministers of the EU held on Monday,
- The Greek PSI deal reached the same day
- An hypothetical intervention of the ECB
This may have helped to calm financial markets, including Portugal, despite of the media frenzy. Here are your sovereign bond fluctuations of the week:
As can be seen, the vast majority of sovereigns enjoyed a fall in yeilds, probably associated with a decrease in risk perception following the events of Monday.
- Importantly, pressure on Portugal, which was all the talk in the beginning of the week, eventually subsided, although speculators are still salivating over it. Contrarily to Bloomberg, I think this might be already due to an ECB intervention.
- The same was not the case in Greece. This is understandable. Monday’s PSI deal meant that bonds lost value as they became increasingly riskier. For more details on this, please refer to this post.
- Spain is more complicated and mitigated. Overall yields still fell, although not as much thanks to rebound on Friday. This was surprising, given the good debt auctions recently, and possibly related to (lack of) ECB intervention in the markets, but that’s a poor explanation, given that other countries dependent on the ECB did not experience the same movements. My best guess is that this rise in the yields might have been a reaction to the 98% fall in Santander’s profit announced on Wednesday.
- The German rise is too small to comment, despite being intriguingly consistent across maturities. Could be a sign of increased demand due to its attractiveness.
Moreover, the week was filled with relatively good news, in economic and financial terms:
- The flash estimate of annual Euro-Zone inflation for January 2012 was of 2.7%.
- Unemployment was estimated at 9.9% for the whole EU and at 10.4% for the Euro-Zone.
- More prominently, during the Council of Ministers on Monday, 25 countries (all except the UK and the Czech Republic) signed up to the Fiscal Compact. At the same time, the British prime minister back-tracked his “veto”, losing face at home, but allowing the other 25 countries to use the EU institutions for these austere purposes.
- Moreover, the Greek government seemed to have reached an agreement with the IIF on Monday, which is expected to be concluded officially during the weekend. However, that odyssey is not necessarily over yet.
- Ministers also agreed to the rather mundane and redundant commitments (because not backed by actual tools to do so) to growth.
- Finally, Spanish and French bond auctions seem to have performed relatively well.