Just Say Nein - Bundesbank On European QE: "Abandon The Idea Once And For All"
While it will hardly come as a surprise to many that after making it abundantly clear that Germany is in total disagreement with ECB monetary policies, culminating in thedeparture of Jurgen Stark from the European central printing authority, Germany will not permit irresponsible, Bernanke-esque monetary policies, it probably should be noted that evenfollowing the most recent escalation of adverse developments in Europe, which are now on the verge of unwinding the entire Eurozone and with it the affiliated fake currency, that the German central bank just said that any European QE could only come over its dead body. Today channeling the inscription to the gates of hell from Dante's inferno is none other than yet another Bundesbank board member, Carl-Ludwig Thiele, who said that "Europe must abandon the idea that printing money, or quantitative easing, can be used to address the euro zone debt crisis...One idea should be brushed aside once and for all - namely the idea of printing the required money. Because that would threaten the most important foundation for a stable currency: the independence of a price stability orientated central bank."
In other words, the best Europe can hope for is massive liquidity provisioning as has been the case in recent months, when the ECB's balance sheet has soared by almost $1 trillion in 6 months (perhaps someone should ask the Bundesbank just what they think of that). However, for that to happen, banks have to continue to be on the brink, even more than now one could add, which simply means that the ECB will reactively provide liquidity to insolvent banks (at cheap rates) which will immediately turn around and redeposit the cash back at the ECB, but unlike the US, will not inject the monetary system with unsterilized cash. Which means one thing: Bernanke is and will continue to be stuck as the only source of marginal "Austrian" cash (i.e., market moving) in the world, and once the current episode of EUR-hatred passes, and it will, the revulsion will once again turn to where the next imminent money printing episode will come from - the 3rd subbasement of the Mariner Eccles building...
and....
S&P Downgrades EFSF From AAA To AA+, May Cut More If ( When ) Sovereign Downgrades Continue
And so the latest inevitable outcome of the French downgrade from AAA has arrived, after the S&P just downgraded the EFSF, that pillar of European stability, from AAA to AA+. S&P adds: "if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'." In other words, as everyone but Europe apparently knew, the EFSF is only as strong as the rating of its weakest member. And now the rhetoric on how AAA is not really necessary for the EFSF, begins, to be followed by AA, next A, then BBB and finally how as long as the EFSF is not D-rated all is well.
From S&P:
European Financial Stability Facility Long-Term Ratings Cut To 'AA+'; Short-Term Ratings Affirmed; Outlook Developing
Overview
- On Jan. 13, 2012, we lowered to 'AA+' the long-term sovereign credit ratings on two of the European Financial Stability Facility's (EFSF's) previously 'AAA' rated guarantor member states, France and Austria.
- The EFSF's obligations are no longer fully supported either by guarantees from EFSF members rated 'AAA' by Standard & Poor's, or by 'AAA' rated securities. We consider that credit enhancements sufficient to offset what we view as the reduced creditworthiness of guarantors are currently not in place.
- We are therefore lowering our long-term issuer credit rating on the EFSF to 'AA+' from 'AAA'. We are also affirming the 'A-1+' short-term rating on EFSF.
- The outlook is developing, which reflects that we could raise the EFSF's long-term rating to 'AAA' if we see that additional credit enhancements are put in place, but also the likelihood that we could lower the rating further if we conclude that the creditworthiness of the EFSF's members will likely be further reduced over the next two years.
Rating ActionOn Jan. 16, 2012, Standard & Poor's Ratings Services lowered the 'AAA' long-term issuer credit rating on the European Financial Stability Facility (EFSF) to 'AA+' from 'AAA' and affirmed the short-term issuer credit rating at 'A-1+'. We removed the ratings from CreditWatch, where they had been placed with negative implications on Dec. 6, 2011. The outlook is developing.RationaleWhen we announced the placement of the ratings on the EFSF on CreditWatch on Dec. 6, 2011, we said that, depending on the outcome of our review of the ratings of the EFSF's guarantor member sovereigns, we would likely align the issue and issuer credit ratings on the EFSF with those of the lowest issuer rating we assigned to the EFSF members we rated 'AAA' (as of Dec. 6, 2011), unless we saw that sufficient credit enhancements were in place to maintain the EFSF rating at 'AAA' (see "European Financial Stability Facility Long-Term 'AAA' Rating Placed On CreditWatch Negative," published Dec. 6, 2011).On Jan. 13, 2012, we announced rating actions on 16 members of the European Economic and Monetary Union (EMU or eurozone; see "Standard & Poor's Takes Various Rating Actions On 16 Eurozone Sovereign Governments," Jan. 13, 2012). We lowered to 'AA+' the long-term ratings on two of the EFSF's previously 'AAA' rated guarantor members, France and Austria. The outlook on the long-term ratings on France and Austria is negative, indicating that we believe that there is at least a one-in-three chance that we will lower the ratings again in 2012 or 2013. We affirmed the ratings on the other 'AAA' rated EFSF members: Finland, Germany, Luxembourg, and The Netherlands.Following the lowering of the ratings on France and Austria, the rated long-term debt instruments already issued by the EFSF are no longer fully
supported by guarantees from the EFSF guarantor members rated 'AAA' by Standard & Poor's, or 'AAA' rated liquid securities. Instead, they are now covered by guarantees from guarantor members or securities rated 'AAA' or 'AA+'.We consider that credit enhancements that would offset what we view as the now-reduced creditworthiness of the EFSF's guarantors and securities backing the EFSF's issues are currently not in place. We have therefore lowered to 'AA+' the issuer credit rating of the EFSF, as well as the issue ratings on its long-term debt securities.OutlookThe developing outlook on the long-term rating reflects the likelihood we currently see that we may either raise or lower the ratings over the next two years.We understand that EFSF member states may currently be exploring credit-enhancement options. If the EFSF adopts credit enhancements that in our view are sufficient to offset its now-reduced creditworthiness, in particular if we see that once again the EFSF's long-term obligations are fully supported by guarantees from EFSF member-guarantors rated 'AAA' or by securities rated 'AAA', we would likely raise the EFSF's long-term ratings to 'AAA'.Conversely, if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'.
and.........
http://globaleconomicanalysis.blogspot.com/2012/01/portugal-downgraded-to-junk-bond-yields.html
Portugal is poised to quickly follow Greece into the default abyss following a debt downgrade to junk status by the S&P on Friday.
The Wall Street Journal reports Portugal's Bond Yields Rise Sharply After Rating Cut To Junk
The Wall Street Journal reports Portugal's Bond Yields Rise Sharply After Rating Cut To Junk
Portuguese borrowing costs rose sharply Monday as some investors were forced to sell their government bond holdings after Standard and Poor's Corp. downgraded the country to junk status late Friday.
Portugal is now rated as non-investment grade by all three major rating companies. Moody's rates the country at Ba2, Fitch at BB+ and Standard and Poor's at BB.
Non-investment, or junk, bonds have an increased risk of default and pay a higher yield than investment grade bonds to compensate investors for holding the extra risk.
The yield on the two-year and five-year government bonds rose in excess of two percentage points Monday to yield 13.49% and 16.80%, respectively, while the 10-year benchmark rose by just over one and a half percentage points to yield 13.55%, according to data from Tradeweb.
"Now that Portugal is rated as junk by all three agencies, there is forced selling by investors as it [Portugal] is removed from various bond indices and funds," noted one trader familiar with the matter. "It doesn't help that the markets are thin due to the U.S. holiday which makes price movements even more erratic."Portugal 2-Year Government Bonds
Investors are also worried that Portugal may have to follow Greece and re-structure their government debts as they are unable to access the funding market.
The spread between Portugal's government bonds and German bunds hit record levels Monday with the 10-year spread widening by over one and a half percentage points to 1225 basis points.
Portugal 10-Year Government Bonds
As shown in the above chart, yields continued to rise on Monday, after the WSJ article was written.
Graphs in the above charts are not current, but the summary quotes on the left side of the chart are accurate.
The yield on two-year Portuguese bonds is 15.78 and the 10-year yield is 14.41. Thus, the yield-curve is inverted once again and that is a sign of severe stress.
Given that the Ducks are Lined Up for Greek Default, it's time to look ahead. A Greek default may be priced in, but what about Portugal or Spain?
As shown in the above chart, yields continued to rise on Monday, after the WSJ article was written.
Graphs in the above charts are not current, but the summary quotes on the left side of the chart are accurate.
The yield on two-year Portuguese bonds is 15.78 and the 10-year yield is 14.41. Thus, the yield-curve is inverted once again and that is a sign of severe stress.
Given that the Ducks are Lined Up for Greek Default, it's time to look ahead. A Greek default may be priced in, but what about Portugal or Spain?
and.....
http://globaleconomicanalysis.blogspot.com/2012/01/greece-dispatches-officials-to-us-over.html
A Greek default appears likely soon as Greece Dispatches Officials to US Over Default Fears.
Greece sent senior officials to Washington on Monday for meetings with the International Monetary Fund as it raced against the clock to break a deadlock in debt swap talks that has raised fears of an unruly default.
Barely a month after an injection of bailout funds helped avert bankruptcy, Greece is back at the centre of the euro zone crisis as fears of a default and a subsequent euro zone exit overshadow a mass credit downgrade of euro zone countries.
Cash-strapped Athens needs a deal with the private sector within days to avoid going bankrupt when 14.5 billion euros of bond redemptions fall due in late March.
But Athens is quickly running out of time on the bond swap front. A deal must be sealed before senior inspectors from the EU, IMF and ECB "troika" arrive in Athens at the end of the week to agree details of a second, 130-billion-euro bailout.
Furthermore, an agreement in principle is needed by the end of this week if it is to be finalized in time for the March bond redemptions, Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times.
Banking sources say Athens is not the problem in the talks, pointing the finger at terms insisted on by the so-called troika of EU, ECB and IMF lenders keeping Greece afloat with aid.
In a bid to resolve the impasse, a government source said the head of Greece's debt agency and a senior adviser were travelling on Monday to Washington to meet IMF officials - just a day before a team of technical experts from the troika arrives in the Greek capital.
One banking source said official sector creditors had asked for a coupon of less than 4 percent, irking banks for whom it would have meant losses of over 75 percent on the bonds.
A second source involved in the discussions said the troika had pushed for a coupon of 2 to 3 percent that banks deemed unacceptable, below the 4 percent level that Greece and France proposed. Banks considered a 4 to 5 percent coupon sustainable for Greece, the source said.
Without a more palatable offer, the level of participation among private creditors could slip to below the level needed to ensure the deal is considered voluntary, the source said.Senior S&P Official Expects Default Soon
CNBC reports S&P expects Greece to default soon.
Greece will default shortly on its debt obligations, a senior Standard & Poor's official told Bloomberg Television on Monday.Greek One-Year Bond Yield Touches 415%
"Greece will default very shortly. Whether there will be a solution at the end of the current rocky negotiations I cannot say," said Moritz Kraemer, the head of the agency's European sovereign ratings unit.
"There is a lot of brinksmanship on and a disorderly default will have ramifications on other countries but I believe policymakers will want to avoid that ... The game is still on."
Ducks Lined Up for Merkel Orchestrated Default
The hangup preventing an agreement is the coupon rate. Germany has proposed a 2% coupon rate. That would drive the losses on Greek bonds from 60% to 80%.
Is this a signal that Chancellor Merkel has had enough of bailouts and wants to dump Greece? I think so and talks with the IMF suggest so as well.
I do not really buy the idea that a deal has to be reached within days given bond redemptions are not until late March. It 's easier to believe the IMF and EU need that time to arrange for an orderly as possible Greek return to the drachma.
It's possible of course that a deal is worked out, but it seems Germany and the IMF have had enough with Greece and the S&P is preparing everyone for the inevitable.
The ducks are lined up for default. All it takes is for creditors to refuse a coupon rate of 2% and the accompanying 80% losses (soon to be 100% losses) for anyone without Credit Default Swap (CDS) protection.
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