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What €750m?
Jun. 8th, 2010 01:25 pmInteresting times on the eurobond markets. Remember when in May the yields on Greek bonds almost halved after the eurozone's 16 finance ministers announced a €750bn rescue package that would guarantee the debt of any eurozone country. It comprised €440bn in loans or guarantees from Eurozone countries, €60bn from the EU and up to €250bn from the International Monetary Fund? The tucked-away addendum (which was the really important bit) was that the ECB would "support this process by purchasing bonds of private and public issuers on the secondary market in order to counter tensions in certain market segments".
At the time I wrote that this was "an awful lot of money". And, well, it remains an awful lot of money, but only in the sense of rescuing Greece, Portugal and Ireland. If you start looking at the big boys, it's a pittance.
And it might be the big boys that we have to look at. Since that May 10 announcement the yield on Greek debt has been gradually rising (i.e., their credit worthiness has been getting gradually worse), but it is nowhere near what was seen on May 8 as "meltdown" point. But yields on Spanish and Italian bonds are now above their level of May 8. The fact is, when the ECB referred to "certain market segments", it didn't really have in mind "everywhere in the eurozone bar Germany".
France was initially a beneficiary of the "flight to quality" that saw one buyer of Greek, Portuguese and Irish bonds (the ECB) and lots of sellers (the rest of the market. Now, however, France is more likely to be talked of as "the next eurozone country to stop being triple A".
And the ECB is suffering from typical EU sclerosis. It has so far spent only €40.5bn (and only €5bn last week, so it's slowing down), with the governing council reported split. Trichet, it would appear, is not having things all his own way. It's also only buying the really crap bonds, which is, in turn, putting pressure on Spain, Italy and, whisper ye it ever so soft, France.
In the FT this morning Harvinder Sian of RBS says, with admirable restraint, that "the ECB may have to buy a larger amount of bonds than it had hoped as the stability of the eurozone rests on investor confidence". This continues the ridiculous line that it's all a matter of confidence, but it's true in as far as it goes. Investor confidence may not in the long term be enough, but if you don't maintain the illusion, you won't even get started.
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True to the traditions of never trying to cath a falling knife, I've held back from buying BP shares, which in a few years time will be seen as having been the buying opportunity of the decade. Still, just because something is a fundamentally good buy today, that doesn't mean that it isn't going to be a better buy tomorrow. I'll push the hunch that BP will announce some kind of dividend cut, and I'll choose that moment to get my money in. At the moment it's the institutional investors such as Nordea that are pushing the price down, and it must be admitted that the worst-case scenario (BP loses all its business in the US) is a mite worrying. But the reward-to-risk is good. And the important point, I think, is that any dividend cut won't be because BP is under earnings pressure, but solely for PR purposes. The money won't disappear. It just stays in the accounts.
______
At the time I wrote that this was "an awful lot of money". And, well, it remains an awful lot of money, but only in the sense of rescuing Greece, Portugal and Ireland. If you start looking at the big boys, it's a pittance.
And it might be the big boys that we have to look at. Since that May 10 announcement the yield on Greek debt has been gradually rising (i.e., their credit worthiness has been getting gradually worse), but it is nowhere near what was seen on May 8 as "meltdown" point. But yields on Spanish and Italian bonds are now above their level of May 8. The fact is, when the ECB referred to "certain market segments", it didn't really have in mind "everywhere in the eurozone bar Germany".
France was initially a beneficiary of the "flight to quality" that saw one buyer of Greek, Portuguese and Irish bonds (the ECB) and lots of sellers (the rest of the market. Now, however, France is more likely to be talked of as "the next eurozone country to stop being triple A".
And the ECB is suffering from typical EU sclerosis. It has so far spent only €40.5bn (and only €5bn last week, so it's slowing down), with the governing council reported split. Trichet, it would appear, is not having things all his own way. It's also only buying the really crap bonds, which is, in turn, putting pressure on Spain, Italy and, whisper ye it ever so soft, France.
In the FT this morning Harvinder Sian of RBS says, with admirable restraint, that "the ECB may have to buy a larger amount of bonds than it had hoped as the stability of the eurozone rests on investor confidence". This continues the ridiculous line that it's all a matter of confidence, but it's true in as far as it goes. Investor confidence may not in the long term be enough, but if you don't maintain the illusion, you won't even get started.
++++++
True to the traditions of never trying to cath a falling knife, I've held back from buying BP shares, which in a few years time will be seen as having been the buying opportunity of the decade. Still, just because something is a fundamentally good buy today, that doesn't mean that it isn't going to be a better buy tomorrow. I'll push the hunch that BP will announce some kind of dividend cut, and I'll choose that moment to get my money in. At the moment it's the institutional investors such as Nordea that are pushing the price down, and it must be admitted that the worst-case scenario (BP loses all its business in the US) is a mite worrying. But the reward-to-risk is good. And the important point, I think, is that any dividend cut won't be because BP is under earnings pressure, but solely for PR purposes. The money won't disappear. It just stays in the accounts.
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