21 February 2012 – “Oops!... I Did It Again” (Britney Spears, 2000)

21 February 2012 – “Oops!... I Did It Again” (Britney Spears, 2000)

Uneven open, for once, with not much cheer or relief out of Asia on news that the Greek bail-out package #2 was going through, after yet another all-nighter. Initial European reaction slightly negative and then balancing out while poring through the results. Nothing to warrant a sell-off, of course, but nothing to carry markets any further for the moment, as everyone is well aware how stretched the final result feels. As 120% debt/GDB was targeted (by 2020), and no backtracking possible, 120.5% was delivered, by pulling all levers and even the Northern front let “fünf gerade lassen”. Seems reminiscent of Greek’s initial entry into the club, doesn’t it?

EUR about the only initial gainer, along with mechanically relieved periphery sovereigns (that is without the famed GGB 4.3% Mar 2012, obviously, which will be caught into the PSI). Portugal and Ireland bonds steady (Any bail-out terms sweetener sometime?)

Markets then drifting lower / wider on “and now, what next?” post-party hang-over. No eco figures to focus on, either.

Research desks, press, blogo- and Twitter-sphere all in arms and chewing on the (bizarrely) (…) widely leaked sustainability analysis of the Troika and the visible stretching and efforts of all to make things happen: PSI participation, IMF participation (what is sizeable?), ECB and NCB participation, CAC, EFSF liquidities, yet to fulfil Greek conditions, escrow account, on-spot Troika monitoring, real austerity versus growth predictions, Greek bank recapitalization needs, privatizations. In case of under-implementation / deviation from the plan, the Troika sees a risk of hitting 160% in terms of debt to GDP by 2020 (“tailored downside scenario”), that’s where we stand now. So the half percentage point deviation from the 120% target after this latest overnighter… Looks like time was bought until early March – and then, we’ll need to see... Default averted in the meantime.

Final PSI agreement: 53.5%, of the principal amount will be forgiven on eligible GGBs; 31.5% exchanged into 20 new 11 to 30 YRS GGBs and 15% into short-dated EFSF bonds. The new GGB coupons will pay 2% from Feb 2012 to 2015; 3% from 2016 to 2020; 4.3% thereafter until 2042. Bonds will thus have average coupons between 3.082% for the 2023 and 3.853% for the 2042, respectively yield between 3.005% and 3.651%. I get 3.586% as average coupon (IIF 3.65%), if all tranches were equal. Average life 20.5 years. Average yield is 3.433%. Possible GDP sweetener, capped, not fully disclosed yet. Accrued interest to be paid in EFSF notes (That’s some EUR 10.8bn for the total of 2012 for Greek domestic and international bonds)

That compares to the French OAT Oct 2032 yielding 3.591%, as of today. By and large, for every tranche, investors will own an investment paying about French risk, or slightly below. Will next need to see whether holders will buy into this, given lingering doubts about the sustainability of things.

Spanish bill auction raised exactly the targeted EUR 2.5bn in 3 and 6m bills at yet again lower yields of respectively 0.396% (vs. 1.285%) and 0.779% (vs. 1.847%, both late Jan). The EFSF raised EUR 1.99bn 6m bills at 0.191% with a B/C of 3.

Need to check in what form the EFSF plans to raise those shorter bonds to back the Greek exchange.

Initial raft of new issues, in riskier classes (senior, cross-over credit), probably mistaken on the risk-appetite that could arise from a solved Greek deal. All deals got done nevertheless, seemingly without problem and on tightened prices from guidance. With 3 senior financials, next to the ones we saw lately, that market seems to reopen nicely for the moment. Covered bonds in hiding at the same time. SSA front quiet, after yesterday’s UNEDIC and CADES taps.

ECB deposits up EUR 10bn to EUR 464bn.

VIX slightly up to 18.5 from 17.8 on Friday.

Brent 120.5/ WTI 104.5, about stable in absence of further Iran / MEA news. Gold up to 1755, 4 below this year’s 1759 high.

Baltic Dry down again to 706 from 715. Had 7 days of uptick from 647, a 25-year low, on 03 Feb to 734 last Tuesday and reversing since.

Spreads to Germany initially tighter, mainly in the periphery, then backing up, and finally closing a bit better for theItaly and Spain.

10 YRS swaps +40 (), Finland +44 (), Netherlands +47 (-1), Austria +108 (-2) France +112 (), EFSF +127 (),Belgium +164 (+3), Spain+311 (-6) and Italy +345 (-5). DBR 2022 1.97%, up 1bp.

Spain targetting the 5% mark (5.08%), lower end of a broad 5 to 5.50% range (with spikes to 6.30% and 6.70%) 10 YRS SPGBs traded since Nov 2010. Italy in sync tightening.

Tomorrow: Chinese Feb PMI. Dec EU Indu Orders. PMI figures for DE, FR & EU. Feb CPI for FR & IT. EUR 5bn German 2 YRS auction.

And now? Probably waiting some more for things to get clearer on and in Greece. For a change…Ooops.