Sovereign debt market developments this week were marked by 4 main events:
- Italy’s successful sovereign bond auction on Monday.
- Spain’s successful sovereign bond auction on Thursday.
- Thursday’s LTRO by the ECB.
- Friday’s Council of the EU meeting.
We can see that the largest reaction in all EU countries was on Thrusday. In all cases, whether the markets had been growing or decreasing, the result was a stabilisation of the yields in the last two days of the week.
- In Portugal, the positive review by the Troika pushed short run rates down, while the final agreement between the IIF and Greece opened the door to PSI everywhere, particularly in Portugal and Ireland.
- Italian and Spanish yields fell as the result of two good debt auctions, on Tuesday and Thursday, respectively
- France and Belgian yields fell probably due to and in anticipation of a good auction of french debt on Thursday as well as to mild inflation and a rebound of economic expectations.
- Finally German yields behaved counter cyclically to their core neighbours. They increased with the LTRO auction and fell with the PSI. This might be due the fact that any monetary expansion is implicitly guaranteed by the Bundesbank, which itself is guaranteed by the German Finance Ministry. Moreover, the PSI could imply a fall in future expected expenditure, thus driving yields down.
Here’s a chronology of all the events:
Monday – February 27, 2012:
- Italian Borrowing Costs Tumble At Bill Auction
- S&P Cuts Greek Debt Rating To Selective Default
- EU issues € 3 billion 20 year bond for Ireland
Tuesday – February 28, 2012:
- Portugal passed third troika review (Official), but finance minister expects economy to shrink by 3.3% this year.
- Economic sentiment increases in both the EU and the euro area
- Final agreement between Greece and IIF describes PSI as reducing the total debt burden to Greece by €107 Bn, through a 53.5% haircut on the value of the principal accompanied. This is to be accompanied by a 31.5% debt exchange of their principal for longer maturities.
Wednesday – February 29, 2012:
Thursday – March 1, 2012:
- Euro area unemployment rate at 10.7%
- Euro area inflation estimated at 2.7%
- ISDA rules that the Greek PSI did not amount to a CDS triggering “credit event”.
- ECB injects €529 Bn into 800 Euro-Zone banks through 3 year LTROs.
- Spain Raises Maximum Amount At Bond Auction, Yields Fall
- France Sells E7.991 Billion Worth Of OATs, Yields Fall
Friday – March 2, 2012:
- Council of the EU Meeting: 25 EU Member states sign the Fiscal Compact treaty, akaTreaty on Stability, Coordination and Governance in the Economic and Monetary Union(TSCG)
- Statement of Euro Area heads of State and Government shows optimism that second adjustment programme for Greece “will be adopted in the coming days”.
- Bundesbank in clear disagreement with Draghi’s course.
I’m sure many more interesting things happened. For complementary comments on financial market developments you might be interested in reading the Keystone Speculator blog. You might also want to pay a visit to the EU Blogging Portal’s “The Week in Bloggingportal” as well as the blogroll itself.
- Weekly Bond Yield developments in the Euro Area (W8.2012): SMP, Greek bailout, PMIs,noise, forecasts and Italian Debt auctions
- Weekly Bond Yield developments in the Euro Area (W7.2012): GDP, Industrial Production, Debt Swaps and ECB Seniority
- Weekly Bond Yield developments in the Euro Area (W6.2012): Divide & Conquer, ECB haircut and banking consolidation
- Weekly Bond Yield developments in the Euro Area (W5.2012): Council Decisions, PSI Deal & Statistics
- Weekly Bond Yield developments in the Euro Area (W4.2012): Greece Negotiations and Portuguese Yields
- Weekly Bond Yield developments in the Euro Area (W30.2011): Decaying Core & Differentiated Periphery