Italian Yields Fall to 9-month Low; Greek Initiates Debt Swap

Devan Biswas
28 Feb, 2012
New York City

European markets closed mixed and Greece kicked off its debt swap program with private holders. Portugal said it passed third check from troika and is not looking for more debt or more time to pay the current debt. Italian debt yields dropped to a 9-mnth low.

[R]4:10 PM Frankfurt – European markets closed mixed and Greece kicked off its debt swap program with private holders. Portugal said it passed third check from troika and is not looking for more debt or more time to pay the current debt. Italian debt yields dropped to a 9-mnth low.[/R]

European markets traded mixed but the news linked to Greece and Portugal dominated the market sentiment. The latest credit opinion downgrade did little to sway the market sentiment as investors focused on the credit default swaps trading.

S&P lowered its debt view on Greece to “selective default” from CC and cited the recently inserted clause that will force the debt restructuring on all private investors as long as two-thirds of investors agree.

Greece debts have $3.2 billion of CDS in Greece outstanding according to the estimate provided by analyst Lauren Rosborough at Societe Generale that cover €206 billion of Greek debt. The relative small exposure in the CDS market is likely to force private holders to agree to debt swap.

Also, European Central Bank issued a statement before the markets opened that it temporarily suspended eligibility Greek government bond as collateral. Greece separately also launched its private debt exchange offer that is expected to win support of more than 66% of holders.

Portuguese Finance Minister Vitor Gaspar said that the nation passed third financial review from the troika to for the release of €78 billion bailout that was agreed last year.

Finance minister also said that the country is not looking for more debt or more time to repay the current loans.

Gaspar also added that Portugal’s economy is expected to contract by 3.3% in 2012 and unemployment is expected to increase to 14.5%.

FTSE 100 index eased 0.5 to 5,915, DAX 30 index gained 11.4 to 6,861 and CAC 40 index added 9 to 3,450.

Debt auctions were in focus again after Italian Treasury sold €6.25 billion five and ten year bonds in two separate auctions.

The yield on 10-year bond declined to 5.5% from 6.08% at the last auction in January and interest in the auction fell as bid-to-cover ratio fell to 1.40 from 1.42 from the previous auction.

The Treasury also sold 5-year bond that yielded 4.19% compared to 5.39% yield at the previous auction in January and dropped to the lowest since the May auction, last year.

Germany said inflation in February accelerated to 2.3% from a year ago on the rising costs of fuel according to the latest data released by the statistics agency Destatis.

Stock Movers

Peugeot SA surged 6% in early trading but fell 1.8% at close to €15.03 after media reports suggested that the company is in negotiations to sell 7% stake to General Motors.

Casino Guichard Perrachon SA increased more than 1% but closed up only 2 cents to €71.88 after the grocery retail chain reported full year net income increased 6.6% to €568 million.

Cove Energy Plc gained 1.6% to 238.50 pence on the speculation that India controlled Oil & Natural Gas Corporation and Gas Authority of India Limited may offer $2 billion outbidding a combined offer from Royal Dutch Shell and PTT Exploration & Production.

Abengoa SA soared more than 4% to €15.01 after the alternative energy power plant maker reported 24% increase in net annual income to €257.4 million.

Whitbread Plc declined 1.6% to 1,692 pence after hotel chain operator said revenues declined 1.8% at locations that are open at least a year in the eleven weeks to Feb 16. Revenues in the 50-week period increased 2.7% after rising at 2.4% in the 13-week period to December 1.

TomTom NV dropped 17% to €3.64 after the navigation device maker forecasted 2012 sales to fall to €1.1 billion from €1.27 billion in 2011 and adjusted earnings per share are expected to drop to 35 cents from 55 cents a year ago.