PIGS

Rumour has it that the ECB is buying Greek bonds again. Bloomberg news wire quotes a single person with knowledge of the transactions, who said purchases were mostly in maturities of five years.

The news comes as yields on 10-year Greek government debt surpass the record levels last seen in the May bail-out. Back then, yields spiked from about 8 per cent to more than 12 per cent, before falling equally sharply back following bail-out talks. This time, yields have grown slowly and steadily (see chart). These yields are what the market charges on reselling government debt: they are not the actual cost of debt to the government as at auction. In the absence of continuous auctions, however, they are a good proxy.

The cost of debt in the four “peripheral” countries – Greece, Portugal, Spain and Ireland – all reacted strangely to Ireland’s bail-out. The bail-out was intended to reassure markets, but yields did not fall as much as expected and since then have risen in all cases. Only in Spain are yields now tempering. Read more

The key level of 8 per cent has been rapidly passed today by rising Irish ten-year bond yields. London clearing house LCH.Clearnet has now moved to protect itself from any possible restructure, by making it more expensive to trade Irish debt.

LCH.Clearnet, the world’s second largest fixed income clearing house, said an additional 15 per cent margin requirement would be charged on investors’ net exposure to Irish bonds because of the increasing risk of a sovereign default. It’s another blow, following news that some SWFs were divesting Irish and Portuguese debt. The ECB is apparently buying Irish debt yet again.

Tension rose today following a Portuguese debt auction. Lisbon did sell €686m 10-year bonds and €556m 6-year bonds, less than the guideline range, which was €750-1250m in both cases. (Selling less than the guideline amount has been a feature of Portuguese debt auctions since July.)

Yields, however, were punitive. Lisbon will pay 6.81 per cent Read more

The Greek cost of debt has just risen quarter of a point: Greece will repay the markets €300m over six months at 4.82 per cent, up from 4.54 per cent at the last auction in October. The rise takes the Greek cost of debt back up to highs in 2008 (see red spots on chart).

Greece is testing the market, auctioning short-term debt roughly monthly instead of quarterly (see blue bars on chart). Six month and three month bills are still being regularly offered, but there have been no 1, 5 or 10-year bonds since April and no other maturities for even longer.

The timing of Greek debt auctions has been pretty good, to date, raising funds in periods of relative market calm. The secondary market has been wild at times – above 10 per cent – but the maximum agreed yield at auction was a trifling 5.09 per cent in 2008.

This may lend hope to IrelandRead more

Ralph Atkins

Banks in Greece, Portugal, Ireland and Spain account for more than two-thirds of the increase in lending to eurozone financial institutions by the European Central Bank since the summer of 2008 as many struggle to access financial markets.

Banks in the four countries have borrowed €225bn (£185bn) of the €332bn increase in lending since June 2008, according to the Royal Bank of Scotland, which compiled the information from eurozone central banks (see table). This is 68 per cent of the rise in lending, yet these countries represent only 18 per cent of the eurozone’s gross domestic product. Read more