sovereign debt

An apology on sovereign debt?

October 27, 2011 6:59 pm by Claire Jones

Among the timeliest pieces of economic research produced this year has been the Committee for the Global Financial System paper that identified a “vicious circle between the conditions of public finances and those of banks”.

The reluctance of Mr Sarkozy to spend French taxpayers’ money to prop up the country’s lenders for fear that this may cause France to lose its triple-A rating, further hurting those same investments, is just one example of this vicious circle.

It could be seen as embarrassing for regulators that they allowed banks to treat high-grade sovereign debt as though it was risk free, given that it has since been proven to be anything but.

Hervé Hannoun, the deputy general manager of the Bank for International Settlements and former Banque de France deputy, offered his take on regulators’ treatment of sovereign debt on Wednesday. Those hoping for an apology might be disappointed. Read more

Sovereign debt: why Shirakawa’s right

August 1, 2011 6:49 pm by Claire Jones

Last week Bank of Japan governor Masaaki Shirakawa claimed that Europe’s sovereign crisis and the impasse over the debt ceiling could trigger a rise in government bond yields the world over.

However, Mr Shirakawa skipped over just how events in Europe and the US – which bond markets view very differently – could lead to soaring yields elsewhere.
The New York Federal Reserve to the rescue. In a note published on Monday on its Liberty Street Economics blog, Vivian Yue and Leslie Shen argue an unexpected rise of 1 per cent in long-term US bond yields can lead to a 0.14 per cent to 0.19 per cent rise in bond yields in Germany, Japan and the UK.

How so? Read more

Debt affordability, in pictures

April 14, 2011 5:26 pm by Emma Saunders

Greek debt affordability is set to worsen considerably, according to the IMF’s Global Financial Stability Report. But in a series of charts comparing 11 countries, the striking thing is how exposed indebted economies are to rising interest rates or falling GDP.

These charts (a full set toward the end of this post) are a great way to depict several moving parts to get to the nub of the issue. The basic idea is: black line inside the green area – good; black line inside redder areas – bad. Dotted line (forecast) – likewise. (The black line, incidentally, is the historical interest rate on government debt.)

The country profiles, relative to each other, are much as you’d expect. Greece, Ireland and Portugal have less favourable interest burdens (in that order). The US, incidentally, is forecast to edge into the yellow. Japan is not. Read more

Tags: Global, government debt, interest burden, interest payments, interest rates, sovereign debt
Posted in Uncategorized | Permalink

Who’s exposed to Portugal and Ireland?

September 29, 2010 6:38 pm by Emma Saunders

Falling Portuguese and Irish bond prices of late will have been hurting whoever is holding them. But who?

If the stress test result data is anything to go by, German banks are the most exposed of Europe’s larger banks. Caution is required here, as the stress test sample excluded medium and small banks, plus this is trading book data and positions will have changed. Caveats in mind, nine of the 14 German banks to be stress tested had exposure to Irish and Portuguese sovereign debt, totalling €4.1bn.

WestLB, Espirito Santo, Santander and RBS were easily the most exposed to the sovereign debt of both countries combined; each had more than €1bn in exposure, mostly for Portugal. Caixa Geral, Credit Agricole, HSBC and SocGen each had more than $750m.

These data should be seen in context: Read more

Tags: banking, bonds, Europe, Ireland, portugal, sovereign debt, stress tests
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Banks’ exposure to Italy dwarfs risk from PIGS

August 13, 2010 6:53 pm by Emma Saunders

Further jitters at the eurozone periphery today with Irish, Spanish and Greek sovereign yields higher, and news that Spanish banks tapped the ECB for €140bn during July.

Of particular interest, demand for Italian bonds dropped significantly. This matters because European banks are exposed very heavily to Italian sovereign debt – the top 91 banks own €100bn of the stuff in their trading books. This is quadruple the trading holdings of Spanish debt, and 22 times holdings of Irish debt. Indeed, Italian debt is held in the trading books of Europe’s banks more than any other European sovereign – even German-issued debt totals just $70bn.

Italian banks Intesa and Unicredit carry the greatest trading exposure to Italy, as we would expect. After that come Deutsche Bank and Credit Agricole, each with about €10bn. See the data, split by bank, below: Read more

Tags: banks, Europe, eurozone, eurozone crisis, sovereign debt
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Stress tests + Greek default = relative calm

July 27, 2010 5:03 pm by Emma Saunders

If a sovereign default had been factored into the recent stress tests, which banks would have failed and how severe would the contagion have been?

Not too many and not too bad, says the Peterson Institute. They used the sovereign holdings provided by 84 of the 91 banks to model an additional shock: namely, a Greek default. Researchers find bank collapses to be relatively limited – Greek banks collapse, predictably, as do those in Cyprus, but: Read more

Tags: bonds, Europe, eurozone, eurozone crisis, greece, sovereign debt, stress tests, stress tests
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Moody’s downgrades Portugal two notches

July 13, 2010 10:05 am by Emma Saunders

Ratings agency Moody’s has downgraded Portugal’s debt issuer rating from Aa2 to A1; the outlook is now stable. The short-term issuer rating is affirmed at Prime 1 with stable outlook. The action concludes a downgrade review that began on May 5. The level remains above the (temporarily lowered) BBB- required by the ECB to accept a sovereign’s bonds as collateral.

The rationale, straight from Moody’s: Read more

Tags: Europe, eurozone, eurozone crisis, portugal, ratings, sovereign debt, sovereign ratings
Posted in European Central Bank | Permalink

Rumoured eurozone bond purchases

May 13, 2010 11:40 am by Emma Saunders

About €35bn. That is a rough estimate of eurozone government bond purchases by European central banks since Monday.

Spreads between peripheral countries’ debt and bunds have been narrowing, as dealers report strong purchases of Portuguese, Irish, Greek and Spanish bonds. Maturities are reported at up to 10 years and lot sizes are €25m – €50m. Read more

Tags: bail-outs, bonds, eurozone, eurozone crisis, government bonds, government debt, greece, sovereign debt
Posted in Uncategorized | Permalink

Ratings inflation

May 10, 2010 5:54 pm by Emma Saunders

The minimum rating on assets accepted as collateral at the Bank of England is Aa3 — but they can accept lower ratings whenever they please. That is the message of a Bank “clarification” issued today.

Conspiracy theorists might spot a pattern here. The ECB reduced its minimum threshold from A- to BBB- during the crisis, and recently extended this temporary measure into 2011. Read more

Tags: bonds, credit rating, credit ratings, greece, sovereign debt, sovereign rating, UK
Posted in Bank of England | Permalink

Dollar swaps are back – will they work?

May 10, 2010 5:04 am by Robin Harding

The Fed has reinstated dollar swaps with Europe and Canada because European commercial banks are struggling to get hold of dollars. This problem comes up every time strain mounts on the global financial system – the dollar is the world’s reserve currency and only the Fed can provide it. The BOJ is meeting as I write to agree the same.

The policy is necessary to deal with a rise in short-term dollar interbank rates: Read more

Tags: dollar swaps, Global, greece, liquidity, sovereign debt
Posted in Bank of Japan, Federal Reserve | Permalink