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5 year Portuguese bond yields are now near 18%. From a BBC interactive Portugal owes 65.7 billion euros to Spain. Accoding to the BIS its debtors owe Spanish banks a total $88.5 Billion, equivalent to 39% of Potugese GDP. If Portugal continues like this, then Spain has big new bank problems. Apparently because of perspection that the government/liquidity bubble can still rescue Spain, yields there are quite low now.
Spanish 5 year;
http://www.bloomberg...R%3AIND&img=pngThe IMF-ECB-EU troika may reportedly withhold Greece’s next aid tranche in March as officials come to the conclusion that many others have believed for a long time: it’s time to end the pretense that the country can or wants to undertake reform or even remotely has the ability to service its debt. The aim now is less to help Greece and more to avoid an uncontrolled default.
With a default being some type of certainty, the realm of the sublime to the totally ridiculous seems to swirl around the negotiations on Greek debt and no doubt in due course Portuguese debt. The boyz are toying with the absurd idea of thoroughly tossing pari passu out the window. Pari passou is a cornerstone of western law, and basically means equal treatment. In the case of debt default such as with Greece, pari passou would insist on no special treatment or subordination for any party. The Europeans are so corrupted in these dealings that now there is increased talk that the ECB, or hedge funds will be excempted from the same losses as anybody else. Some how things have been twisted around so that speculators with blocking positions can angle for preferred treatment in Greece’s default. What this nullification of pari passou does for future bond demand and financial markets should be apparent.
Zero Hedge: Subordination: “or the tranching of an existing equal class of bonds (pari passu) into two distinct subsets, trading at different prices, and possessing different investor protections (we use the term very loosely) with the result being an even greater demand destruction for sovereign paper.”
On 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’. It strikes me as odd and funny math that the totality of Europe’s scheme can maintain a AA+ when only one country Germany maintains a AAA rating, at least for the moment. Germany makes up 29% of the fund. Italy with 19% is rated BBB+ and Spain with 13% is A. Greece, Ireland and Portugal contribute nothing and are on the receiving end. One would think that Italy’s contribution will be altered lower and perhaps even removed. Apparently the belief is that Germany and France, the later which is still on negative watch will then pick up even more of the burden? No wonder attention has shifted to the ECB. The EFSF bund spread is now 147 Bps.
This chart illustrates the impact on retail spending from those in peak spending years.
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