Monday, April 18, 2011

Irish Bonds Drop After Moody’s Downgrade; Spanish and Greek Debt Slides

By Lucy Meakin - Bloomberg

Ireland’s bonds led a third day of declines by the securities of Europe’s most indebted nations after Moody’s Investors Service cut the nation’s credit rating to the lowest investment grade.
The spread between Greek 10-year debt and equivalent German securities widened to 10 percentage points, while Spanish bonds slid for a third day. German two-year notes declined as data showed European inflation accelerated. Moody’s today lowered Ireland to Baa3 from Baa1 and left its outlook negative, meaning more cuts will probably follow. A report yesterday cited German Finance Minister Wolfgang Schaeuble as saying Greece may need to renegotiate its debt burden.
“We’ve had quite a lot of bad news about the peripherals in the past couple of days,” said Glenn Marci, a strategist at DZ Bank AG in Frankfurt. It “was a lot of bad news in a short period of time, and the spreads are suffering a lot.”
Irish 10-year yields rose 38 basis points to 9.72 percent at 4:42 p.m. in London, the highest since April 6. The 5 percent security maturing October 2020 fell 1.875, or 18.75 euros per 1,000-euro ($1,444) face amount, to 71.52. The five-year yield surged 49 basis points to 10.15 percent.
Ireland’s credit rating was cut two levels by Moody’s as the government struggles to lower thebudget deficit and restore economic growth. Ireland now shares the same rating as Iceland,TunisiaRomania and Brazil.
Portuguese yields reached new records amid concern that nations in the euro region will be forced to restructure their debts. The Iberian nation last week followed Greece and Ireland in requesting financial aid as it attempted to stem surging borrowing costs.

Greek Austerity

The extra yield investors demand to hold Greek 10-year debt instead of equivalent German securities surpassed 1,000 basis points, the most since before the euro’s debut in 1999, and the 10-year yield climbed to a new record high of 13.83 percent. The government announced 76 billion euros in austerity measures and state-asset sales to meet budget-deficit goals.
“The level of Greek yields is shocking,” wrote ING Groep NV rate strategist Alessandro Giansanti in an e-mailed note. “What is worrying the market is the Greek government’s ability to collect revenues and the difficulty to reduce the expenditure.”
Nouriel Roubini, the New York University professor who predicted the global financial crisis, said restructuring of Greek government debt is a matter of time.

‘When, Not If’

“The issue of Greece is not whether there will be debt restructuring, but when it will be done,” he said today at a conference in Almaty, Kazakhstan’s financial center. “One can make the same argument for Portugal’s government and Irish banks,” he said.
Greek two-year note yields rose 68 basis points to 18.51 percent, while 10-year securities yielded 13.83 percent, 55 basis points higher. Portugal’s 10-year bond yield surpassed 9 percent for the first time since 1997, and the two-year yield also climbed to a record 9.84 percent.
John Lipsky, the International Monetary Fund’s No. 2 official, said that “the markets have their doubts” about the bailout programs in Greece and Ireland.
“No one ever expected that a program as strenuous as the Greek program would receive immediate endorsement by the markets. They want to see delivery,” Lipsky said in an interview on Bloomberg Radio.

Euro-Region Inflation

Spanish 10-year yields rose nine basis points to 5.42 percent, amid mounting investor concern that Portugal’s bailout won’t stop the debt crisis from spreading. The difference in yields between Spanish and German 10-year debt widened for a fourth day to as much as 205 basis points.
German debt rose even after data showed euro-region inflation accelerated to the most in more than two years.
Consumer prices in the 17-nation euro region rose 2.7 percent in the year to March, up from a 2.4 percent pace in February, the European Union’s statistics office in Luxembourg said today. That’s above an initial March estimate of 2.6 percent and the fastest since October 2008. Euro-area exports rose 1.6 percent in February from the previous month, a separate report showed.
The benchmark German 10-year bund yield dropped five basis points to 3.38 percent.
To contact the reporter on this story: Lucy Meakin in London at

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