Worst may be over for Europe as Yield spread narrows
Bloomberg has reported in one its article that finally, prospects look brighter for European countries, at least that is what Bond Markets suggest. Europe’s sovereign debt crisis took hold at the end of 2009 after Greece’s newly-elected Pasok government said the budget deficit was twice as big as the previous administration disclosed.
In April, Greece asked to tap an EU-IMF 110 billion- euro ($144 billion) loan facility after being shut out of debt markets. Four months after a European Union- led bailout, Germany’s biggest bond dealers say the worst is over for the region’s most-indebted nations.
Yields on government bonds of Greece, Spain, Ireland and Portugal will fall to within 2.2 percentage points of benchmark German bunds on average in the next two years from 4.61 percentage points last week, according to a Bloomberg News survey of 15 banks that trade directly with Germany’s debt agency. HSBC Holdings Plc, Europe’s largest bank by market value, Goldman Sachs Group Inc. and Societe Generale SA advise buying securities sold by Greece.
Bond dealers are confident that austerity measures will be enough to damp speculation the 16-nation currency union is in jeopardy of falling apart. Gross domestic product in the region will likely increase 1.7 percent this year instead of the 0.9 percent projected at the depth of the crisis in May, the European Commission said Sept. 13. Banks were given more time to raise capital levels to meet new regulations, reducing the likelihood they will need additional government aid.
HSBC and Goldman Sachs recommend Greek 30-year bonds as the price languishes at about 50 percent of face value. Societe Generale advises buying three-year Greek notes, betting a rally in two-year debt will extend to longer-dated securities. Norway’s $450 billion sovereign-wealth fund, the world’s second- biggest, has purchased Spanish, Portuguese and Greek securities.
Pictet Asset Management ended bets that Irish bonds will underperform after yield spreads widened to a record.
An index of Greek, Portuguese, Spanish and Irish credit- default swaps, which insure against default, reached the highest level since June last week. Yields on Irish 10-year debt rose to the highest relative to bunds since at least 1991. The Portuguese-German spread approached the most on record. Trading in Greek bonds fell to 819 million euros in August from 30.8 billion euros a year earlier, the Bank of Greece said Sept. 14.