Chillin' out till it needs to be funded
Greece and Portugal folded when yield on bonds closed above 6% in their case or closer to 7%. ITalian 10 year bond yields hit 6.68% on Monday even as ECB buying totaled $6 bln the week before last and $13 bln last week
Greek PM Papandreau in the meantime gave up and walked out signing a deal with the opposition to come back in a coalition government in February. The Italian vote in the mean time pressured Berlusconi enough to spend some time on Facebook, status updates refuting the idea that he was going to quit even as the countdown to his admission of failure has begun in real earnest. Banks are apparently not too worried about this turn of events as Italy’s facilities, never the main subject of Euro zone deliberations are big enough to create a $350 bln hole in French Banks and is only succeeded by bigger brothers France and Germany within the Eurozone.
Even as Banco Popular purchased its compatriot in Spain, the Cajas are no closer to ponying up the capital from investors and governments who yet have to fund the banks the planned $150 bln this month
A redeeming feature in favor of Italy seems to be the easy repayment schedule for its debt with no repayments like the one Greece is funding itself for in November. Even though Italy needs to curry favour with the powers that be for cash and care support, it has a budget which has refused austerity measures as late as last week, grudgingly signing an increase in retirement age to 67 and sending 14 page apologies to the ECB along with its Demand notes for supporting the banks The average redemption of Italian debt has 7 years to go
At 6.68% yield, according to Reuters Breaking Views, Italy is just at 420 points spread to the risk free rate ( what benchmark?, Bunds may not count anymore and Euro debt is non existent, French yields are beyond compare and Dutch are the only ones left out yet, no way they could be risk free any more) At 450 point spread the economy crumbles as investors leave
BNP continues to be the most at risk as $50 bln each in Credit Agricole and BNP along with some $20 bln at Deutsche Bank and the $9 bln at Barclays remains with the major banks even at such high yields. Boutiques like Jeffries posted real time updates last week to show how they have closed out their sovereign risks in Europe holding less than $10 bln in Market Risk books. Banks have been deleveraging this debt faster esp with Press notes alongside as sovereign risk becomes more akin to junk than the earlier guaranteed return and Europe a play theater for the world’s dissatisfaction at large in the centre of the maelstrom as India, China an d ASia continue growth and US has seemingly just survived the probability of a recession.
HSBC and Stanchart have much less exposure in Europe in business terms but still HSBC holds close to $10 bln in GIPSI sovereigns