Posts
Eurozone bonds hit by mass sell-off and the Eurozone turmoil
The Eurozone bond market was hit by a massive sell of this month because of investor fears. Investor fears spread beyond Spain and Italy to other triple A rated countries such as France, Austria, Finland and the Netherlands. The premium that France pays over Germany rose to a Euro era record of 192 basis points and the premium that Austria pays over Germany rose to a Euro era record of 184 basis points. Markets are losing patience so they are going for the jugular, which are the core countries not the periphery. There is convergence but it is convergence on the weakest. All main Eurozone countries were affected by the rise in bond yields. The only country that wasn’t affected was Germany, and this suggests that the sovereign debt problems are entering a new phase. Italian bond yields moved above 7 percent, a position that is viewed as unsustainable. Spanish premium to Germany hit 482 bp. Traders said there were few buyers in many bond markets, with only the European Central Bank active in Italy and Spain.
German frustrations over Britain’s approach to the Eurozone crisis erupted when a close ally of Angela Merkel accused the UK of selfishness. Volker Kauder criticised Britain for opposing a European tax of financial transactions. He said that the UK was only defending its own interests and not that of the EU. Ms Merkel has urged the Eurozone to move ahead with the Tobin Tax if Britain continued to block the measure. The Eurozone should raise funds from the financial sector to help cash strapped governments. Mr Kauder told the CDU that annual conference that “The British are not members of the currency union but they are members of Europe and they have a responsibility for the success of Europe”. George Osborne, Britain’s Chancellor of the Exchequer, has called the Tobin tax plan a bullet aim at the heart of London.
President Nicolas Sarkozy announced a review of the funding of Frances social welfare system on Tuesday, the 15 th of November. In his review, he stated that the heavy labour costs it imposed hurt the economy and the country’s ability to compete internationally. The French employees appealed to the country’s politicians for structural reforms to cut labour costs, regenerate growth and overturn a big gap in economic performance between France and Germany that has damaged France ability to withstand the pressures of the Eurozone crisis. Mr Sarkozy intends to appoint an advisory council at the end of the year that will be responsible for proposing ways to reduce the weight of taxation on work. “We must rethink the system of financing our social system”, Mr. Sarkozy said. “The very high cost of labour in our country penalizes our economy and penalizes France in international competition”. Medef, the French business confederation, and Afep, the association of private enterprise, complained that France had lost ground to neighboring country, Germany in terms of export market share, balance of payments, fiscal strength and cost of labour and production.
Negotiators for Greek debt holders have offered to swap their bonds for new ones worth half their face value, but only if the new bonds contain high interest rates and have extra incentives, including annual payments if the Greek economy recovers. The confidential offer was proposed to the Greek authorities and it also insisted that the new bonds be issued under British rather than Greek law. Greek officials are expected to present their own counter proposal when talks begins over the bonds. The negotiations are intended to finalise details of the highly –touted deal struck on October 27 in which the Institute of International Finance agreed to take a 50 percent haircut in the face value of their bonds. The deal left open questions on how the 50% hair cut would be achieved. Tweaks in interest rates and maturities for bonds used in swaps for the haircut can have a critical effect on how much bond holders are able to recoup, enabling them to achieve less of a hit on the net present value of their holdings than the headline number announced by the European leaders.
The Eurozone bond market was hit by a massive sell of this month because of investor fears. Investor fears spread beyond Spain and Italy to other triple A rated countries such as France, Austria, Finland and the Netherlands. The premium that France pays over Germany rose to a Euro era record of 192 basis points and the premium that Austria pays over Germany rose to a Euro era record of 184 basis points. Markets are losing patience so they are going for the jugular, which are the core countries not the periphery. There is convergence but it is convergence on the weakest. All main Eurozone countries were affected by the rise in bond yields. The only country that wasn’t affected was Germany, and this suggests that the sovereign debt problems are entering a new phase. Italian bond yields moved above 7 percent, a position that is viewed as unsustainable. Spanish premium to Germany hit 482 bp. Traders said there were few buyers in many bond markets, with only the European Central Bank active in Italy and Spain.
German frustrations over Britain’s approach to the Eurozone crisis erupted when a close ally of Angela Merkel accused the UK of selfishness. Volker Kauder criticised Britain for opposing a European tax of financial transactions. He said that the UK was only defending its own interests and not that of the EU. Ms Merkel has urged the Eurozone to move ahead with the Tobin Tax if Britain continued to block the measure. The Eurozone should raise funds from the financial sector to help cash strapped governments. Mr Kauder told the CDU that annual conference that “The British are not members of the currency union but they are members of Europe and they have a responsibility for the success of Europe”. George Osborne, Britain’s Chancellor of the Exchequer, has called the Tobin tax plan a bullet aim at the heart of London.
President Nicolas Sarkozy announced a review of the funding of Frances social welfare system on Tuesday, the 15 th of November. In his review, he stated that the heavy labour costs it imposed hurt the economy and the country’s ability to compete internationally. The French employees appealed to the country’s politicians for structural reforms to cut labour costs, regenerate growth and overturn a big gap in economic performance between France and Germany that has damaged France ability to withstand the pressures of the Eurozone crisis. Mr Sarkozy intends to appoint an advisory council at the end of the year that will be responsible for proposing ways to reduce the weight of taxation on work. “We must rethink the system of financing our social system”, Mr. Sarkozy said. “The very high cost of labour in our country penalizes our economy and penalizes France in international competition”. Medef, the French business confederation, and Afep, the association of private enterprise, complained that France had lost ground to neighboring country, Germany in terms of export market share, balance of payments, fiscal strength and cost of labour and production.
Negotiators for Greek debt holders have offered to swap their bonds for new ones worth half their face value, but only if the new bonds contain high interest rates and have extra incentives, including annual payments if the Greek economy recovers. The confidential offer was proposed to the Greek authorities and it also insisted that the new bonds be issued under British rather than Greek law. Greek officials are expected to present their own counter proposal when talks begins over the bonds. The negotiations are intended to finalise details of the highly –touted deal struck on October 27 in which the Institute of International Finance agreed to take a 50 percent haircut in the face value of their bonds. The deal left open questions on how the 50% hair cut would be achieved. Tweaks in interest rates and maturities for bonds used in swaps for the haircut can have a critical effect on how much bond holders are able to recoup, enabling them to achieve less of a hit on the net present value of their holdings than the headline number announced by the European leaders.
No comments:
Post a Comment