European Economic Outlook

[greengiraffe]

Another sign of liquidity lowering strict investment criteria...

http://www.cnbc.com/id/101567010

EUROPE: EconOMY
Greece 5-year yields seen near 5 to 5.25 percent
Catherine Boyle and Ee Sing Wong With Reuters
14 Hours Ago
CNBC.com
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A five-year benchmark issue for Greece, its first international bond issue in four years, has attracted more than 11 billion of investor interest as they cast aside memories of a painful haircut they suffered two years ago.

The sovereign set initial price thoughts at a 5 percent-5.25% yield on Wednesday afternoon for pricing Thursday.

"Investors are desperately searching for yield and it is very hard to find anything that pays more than 3 percent to 4 percent in the current market,'' said a banker on the trade. ``This deal is one of the few ways of getting yield in a liquid security.''

"Greece is back," analysts at Credit Suisse proclaimed. After a grueling austerity program under the terms of its two bailouts international lenders, and possibly more importantly European Central Bank President Mario Draghi's pledge to do "whatever it takes" to save the euro, Greece is no longer talked of as the first country likely to leave the single currency.

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Read MoreWhy hedge funds rush into Greek banks may turn sour

The yield on Greece's 2024 bond has fallen to around 6 percent, according to Tradeweb, or about 220bp more than 10-year Portuguese bonds. The curve between five and 10-year bonds for Portugal is 130bp.


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New Greece bond will do 'extremely well': Pro
Bill Blain, strategist at Mint Partners, says the performance of Greek debt so far will attract investors to the new issuance.
Being able to auction off bonds is a clear signal of return of faith in Greece, which less than two years ago seemed to be a basket case. Ireland and Portugal, also bailed out by the troika, have both made cautious returns to the markets in recent months.

Greece's economy hit the low point of its recession in 2013, after shrinking by an average of 6 percent for four years in a row, before stabilizing and returning to slow growth this year.

Read MoreHow Greece's emerging market status may attract investors

More money entered than left the country in 2013, for the first time since records began, which seemed unthinkable just a few years ago. This was mostly thanks to a wave of tourism.


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Yet Greece may not be a safe bet, with economic growth still noticeably weak, despite a low base to recover from. It has underperformed compared to Portugal and Ireland, its counterpart small bailed-out countries.

"The most dynamic and export-led sectors in industry have probably been growing in the first quarter (of 2014)," according to Daniele Antonucci, senior European economist at Morgan Stanley.

"Yet momentum still appears quite weak and the manufacturing PMI, having hovered above the threshold of 50 that separates expansions from contractions, is now back below it, in 'recession' territory."

Read MoreGreece urged to keep talks going as funding gap looms


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Greece: 'Big question marks' remain
Philip Tyson, rates strategist at ICAP, says the Greek 5-year bonds auction on Thursday should have "pretty solid" demand but highlights that longer-term, there are still some "big question marks" over Greece.
Elections either later this year or in early 2015, within three years of the last, turbulent, elections, look increasingly likely as the ruling coalition's majority shrinks. There is growing support for the new, pro-European party Potami (The River) which should restore faith that the country will remain part of the currency region.

There is also believed to be a funding gap of 10-20 billion euro over the next couple of years, although most economists are confident this can be met without a third bailout. Returning to the bond market is one way to address this gap.

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[greengiraffe]

Its about liquidity not the real thing... stupid...

Published April 10, 2014
Boom in Spanish bonds, stocks shows market lacks reality
By
Neil Behrmann
in London
print |email this article

What's real: Locals making a human chain in Valladolid recently at a protest to demand decent jobs and a basic income. - PHOTO: AFP
CONTINUED pensioner and jobless protests in Puerto del Sol, Madrid's main shopping centre, show that investors in booming Spanish bonds and stocks are out of touch with economic reality.
Since mid-2012 when the economic crisis of Spain and other weak eurozone nations was at its worst, 10-year Spanish government bond yields have fallen from a peak of 7.6 per cent to 3.2 per cent. The capital gain on bonds, excluding interest, has been 46 per cent while Spain's IBEX 35 stock index has jumped by 79 per cent and was recently up by as much as 85 per cent. Such is the euphoria of yield-hungry US and other foreign investors that five-year Spanish debt, currently trading at 1.73 per cent, briefly dipped below five-year US Treasuries, last week. eDreams Odigeo SA, a large Spanish online travel reservation company was listed this week, the first initial public offering in three years. The stock fell sharply on its market debut, but its market capitalisation was still as much as 1 billion euros (S$1.73 billion).
A threat to fund manager enthusiasts of euro and European securities would be potential dimming of rose-tinted spectacles in Spain. To be sure, the nation's economic and financial facts remain bleak even though the spin from the government, International Monetary Fund (IMF) and several US and European investment banks is " continued recovery".
"Spain has turned the corner. Growth has resumed in the second half of 2013 after more than two years and unemployment and employment are now gradually improving," said Olivier Blanchard, chief economist at the IMF. "Financial and economic conditions have improved significantly. In fact, Spain's exports have grown faster than Germany's since the crisis - helping to post a current account surplus for the first time in 20 years."
Improvements to the financial health of banks, more flexible labour markets and stronger controls of government and regional spending helped pave the way to a stronger economy and improved business confidence, according to Christine Lagarde, managing director of the IMF.
Moreover, there are anecdotal reports that foreigners are again buying property in the depressed real estate market. Foreign direct inward investment fell from around 52 billion euros in 2008 to around 7 billion euros in 2009, but it recovered to 30 billion euros in 2013.
Although Spain's economy has revived, the scale is tiny and the improvement comes from an exceedingly depressed base.
Spanish bulls remark that industrial output rose 2.8 per cent in February after increasing in the preceding three months. The production increase this year, however, followed 20 months of declines and both production prices and new orders continue to fall. The country is experiencing deflation as Spanish consumer prices dipped 0.2 per cent in March. The fear is that both producer and consumer deflation will cause companies to delay employment-creating direct investment.
Job creation is essential considering that the overall unemployment has only fallen by 1 percentage point to 26 per cent and youth unemployment from 57.4 per cent to 56.6 per cent. It is therefore hardly surprising that Luis María Linde, a European Central Bank (ECB) board member and the governor of Spain's central bank, said last week that quantitative easing (QE), notably more monetary easing, may be necessary to counter deflation.
The IMF and government point out that debt is falling, but it is still at uncomfortably high levels. Government debt as a proportion of gross domestic product is 86 per cent and including bond redemptions, the government borrowing requirement is a hefty 242 billion euros. This includes 133 billion euros of medium and long-term debt, of which only a quarter so far has been issued to the market.
Although the IMF says that the finances of Spanish banks has improved, it admitted in a recent report that they were major buyers of Spanish government bonds and could thus be vulnerable if bond yields rose.

[greengiraffe]

Too much $...

http://www.cnbc.com/id/101572106

Voracious appetite for Greek bonds justified?
Jenny Cosgrave | @jenny_cosgrave
2 Hours Ago
CNBC.com
COMMENTSStart the Discussion

Greece's return to the long term bond market for the first time in four years met huge demand, but some experts warned that the nation's debt still remains highly risky.
Greece, the country once held responsible for sparking the sovereign debt crisis, managed to attract 20 billion euros ($27.7 billion) of offers for a new five-year bond and is set to sell 3 billion euros at a yield of 4.95 percent.

Read MoreGreece offers first long-term bond since 2010


Chris Ratcliffe | Bloomberg | Getty Images
Bond investors are heralding the offer as an important milestone and further boost for the euro zone recovery, with the sub 5 percent yield a significant psychological marker.

"It is hugely significant I think, because it is Greece. Greece is the country that started the whole sovereign debt crisis and (also) because it defaulted," said Don Smith, government bond strategist at ICAP, who said the ongoing hunt for yield also played a part in the success of the offer.

"To have a 4 percent handle on that coupon, is psychologically very important," he said.

Read MoreBundesbank chief: Deflation risks are 'pretty limited
Global head of rates for JPMorgan Asset Management, David Tan said the well-received offering was "symptomatic" of the persistent bid for euro zone peripheral sovereign bonds since the start of the year.

The market also expects additional monetary easing from the European Central Bank later this year, particularly if inflation remains stubbornly low, which was another encouraging factor for Greek bond buyers, Tan said.

That said, Markus Allenspach, head of fixed income at Julius Baer said the yield looked "mean" given the low sub investment grade B- sovereign rating. Others said while the offering was positive for the long term prospects for the euro and peripheral debt, investing in Greek sovereign debt was still too risky.

Head of bonds and currencies at Kleinwort Benson, Fadi Zaher said he was not looking to snap up Greek debt any time soon, as outstanding debt levels in Greece are still high despite debt restructuring two years ago.

Read More'Dire' consequences loom for jobless Europe
"The excitement over peripheral Europe could not offer a better timing for the Greek government's decision to tap the market. That said we are not going to buy Greek debt on a risk-reward basis," he said.

Smith said the risk factor is still "very much there in the 5-year sector" which explains why the difference in yields between 5 year and 10 year Greek bonds is so limited compared to other peripheral markets. Greek 10-year bonds currently yield 5.9 percent. That compares with a yield of 3.9 percent for Portuguese 10-year bonds and 2.7 percent for U.S. 10-year Treasurys. Five-year Treasury notes currently yield 1.6 percent.

"We are not that far from the sovereign debt crisis. The question marks about the longer term success of the euro haven't gone away completely," he said.

Jenny Cosgrave
Writer / Assistant Producer, CNBC.com