8
Mar

Once again: Greece is not going to default.

Escrito el 8 marzo 2009 por Antonio Rivela Rodríguez en Uncategorized

As I said a couple of months ago, Greece is not going to default.

Greeks will be helped by the European Union in every imaginable way, shape or form.

See below for an excellent article where Bloomberg explains how corporate risk is improving on the back of Greece´s budget positive deficit news.

March 8 (Bloomberg) — The cost to protect against corporate defaults fell to the lowest in seven weeks as optimism builds that Greece’s budget crisis will be contained and Dubai moves closer to restructuring its debt.

The Markit CDX North America Investment-Grade Index, linked to credit-default swaps on 125 companies, fell 2.5 basis points to 83 as of 9:41 a.m. in New York, according to broker Phoenix Partners Group. That’s the lowest since Jan. 14. A benchmark credit swaps index in Europe dropped to its lowest since Jan. 18, and Asia-Pacific credit indexes also fell.

Investors are growing less skittish after Greece sold 5 billion euros ($6.8 billion) of notes last week and passed 4.8 billion euros of spending cuts, reducing the risk of default. Also the European Union is preparing a proposal for a European Monetary Fund, a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn said today. Such a fund may ease the disruption caused by a euro member failure.

“The EU and Germany have stepped in and said, ‘We’re going to support Greece,’” said Joel Levington, director of corporate credit for Brookfield Investment Management Inc. in New York, with $24 billion in assets under management. “It seems like that’s being managed prudently.”

Investor perceptions of risk also fell as Dubai World, the state-owned holding company renegotiating about $26 billion of debt, prepares to present a plan to creditors this month where lenders may be repaid in full if they’re willing to wait for their money, said bankers familiar with the talks. The company said in November it planned to postpone repaying loans until May, sparking the biggest plunge in developing-nation stocks.

Dubai Swaps Decline

Credit-default swaps covering Dubai debt for five years fell 28 basis points to 479 basis points, the lowest in more than five weeks, according to London-based CMA DataVision. Contracts on Greece declined 11 basis points to 285, the lowest since Jan. 12.

The extra yield investors demand to own company bonds rather than government debt fell 2 basis points on March 5 to 163 basis points, or 1.63 percentage point, the lowest since Jan. 21, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. Spreads narrowed 5 basis points for the week, the biggest drop since the period ended Jan. 8. Average yields are 4.06 percent, the data show.

“With credit spreads on a tightening trend over the past few days, this is tactically a good moment for opportunistic bond issuance by well-established corporate names with flexibility to move quickly,” Charles Stephens, a debt capital markets specialist at Matrix Corporate Capital LLP in London, wrote in a note to clients today.

Trading Surge

Improved market sentiment prompted a flurry of bond issues today, with at least seven corporate borrowers including Telefonica SA, Renault SA and Italcementi SpA marketing debt in Europe, according to people familiar with the transactions who declined to be identified because terms aren’t set.

Elsewhere in credit markets, mutual funds that buy high- yield bonds had $479 million of inflows, the second week of increases, research firm EPFR Global said. Investors plowed a record $2.6 billion into global bond funds in the week ended March 3, moving out of money markets to seek higher returns, the Cambridge, Massachusetts-based data company said in a report.

Corporate bond trading in the U.S. surged to a two-month high. An average $21.1 billion of debt securities traded daily on Trace last week, the most since the period ending Jan. 8, according to the Financial Industry Regulatory Authority. The average was $18.5 billion a day during the previous week. Trace is Finra’s bond-price reporting system.

AIG, Tribune

American International Group Inc.’s aircraft-leasing unit is seeking to add a $550 million term loan to bank financing, boosting its first debt sale through capital markets since AIG’s 2008 U.S. bailout to $1.3 billion, according to a person familiar with the negotiations. Bank of America Corp. and Goldman Sachs are arranging the financing for International Lease Finance Corp.

A group of Tribune Co. creditors sued the banks behind the publisher’s 2007 leveraged buyout, claiming the $8 billion in loans they arranged doomed the media company to bankruptcy. The banks knew the buyout “would render Tribune insolvent,” attorneys for bondholders owed $1.2 billion wrote in their complaint. Spokesmen for JPMorgan and Citigroup Inc. declined to comment, while representatives of Bank of America Merrill Lynch and Morgan Stanley didn’t return telephone calls.

Loans Climb

The S&P/LSTA US Leveraged Loan 100 Index climbed 0.7 cent to 89.66 cents on the dollar last week, the highest since Feb. 3. The debt has risen from a record low of 59.2 cents on the dollar on Dec. 17, 2008.

Spreads on speculative-grade bonds narrowed 29 basis points last week to 637 basis points, the tightest since Jan. 22, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. High-yield, high-risk companies are rated lower than Baa3 by Moody’s Investors Service and below BBB- by S&P.

Alfa Bank, Russia’s biggest private lender, plans to sell five-year dollar bonds this week, yielding between 8.25 percent and 8.5 percent, according to a person familiar with the matter. The bank hired JPMorgan Chase & Co. and UBS AG to manage the transaction.

Signs that the U.S. recovery is on track have helped investors look past Greece’s budget struggles. U.S. employers in February cut fewer jobs than economists had forecast, even as East Coast snowstorms forced some to temporarily close, a government report showed. Of the 469 companies in the Standard & Poor’s 500 index that reported earnings since Jan. 11, three- quarters beat analysts’ expectations, Bloomberg data show.

Cash Rich

Companies have started exceeding estimates on revenue, not just profits, “indicating that actual revenue growth as opposed to mere cost-cutting is now helping drive profitability,” Morgan Stanley strategists Rizwan Hussain and Adam Richmond wrote in a March 5 note to clients.

Cash-to-debt ratios are at record highs for investment- grade companies, the Morgan Stanley strategists said. The smallest percentage of non-financial companies in three years, 39 percent, increased leverage in the fourth quarter, they said.

The improving economic and earnings trends may help credit spreads narrow this week, Barclays Capital credit trader Jason Quinn and Citigroup strategist Mikhail Foux said March 5. Foux, in a note to clients, said investors should be cautious as “we do not feel that the sovereign story has fully played out.”

‘Initial Signs’

Investors aren’t likely to enter the market as quickly as they exited, Quinn, the co-head of high-grade and high-yield flow trading at Barclays Capital in New York, said in an interview.

“That’s going to happen slowly,” he said. “When investors pull back from the market, it’s often in response to something they weren’t expecting and tends to happen quickly. Coming back in usually takes a bit of time, but we’re definitely seeing the initial signs.”

Concern that Greece’s budget woes would spread to other countries had pushed credit-default swap indexes, which measure corporate credit risk, to at least three-month highs. They’ve retraced more than half of that increase.

The Markit CDX index, linked to 125 companies in the U.S. and Canada, has fallen 23 basis points since Feb. 8.

In London, the Markit iTraxx Europe index of swaps on 125 companies with investment-grade ratings, fell 3.75 basis points today to 74.25, the lowest since Jan. 18, JPMorgan Chase & Co. prices show. The index has declined 19.75 basis points since reaching 94 on Feb. 8.

Asia Swaps Fall

Default swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and equals $1,000 a year on a contract protecting against default on $10 million of debt for five years.

In Asia, the Markit iTraxx Japan index dropped 6.5 basis points to 121.5 basis points as of 3:45 p.m. in Tokyo, according to Morgan Stanley prices. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan decreased 7 basis points to 96 basis points in Hong Kong, Citigroup Inc. prices show. The Markit iTraxx Australia index fell 4 basis points to 84.5 basis points in Sydney, according to Citigroup.

Companies globally issued $45.6 billion of bonds last week, compared with $50.2 billion in the previous period, according to data compiled by Bloomberg. Sales total $493.7 billion for the year, down 34 percent from the $745 billion raised through March 5, 2009. Issuance in Europe dropped 36 percent to 8.9 billion euros, the second-slowest week this year, the data show.

Goldman Sachs Group Inc. led $34.5 billion of investment- grade offerings in the last two weeks, compared with $6.8 billion in the previous period, according to data compiled by Bloomberg.

Goldman Sachs, the most profitable securities firm in Wall Street history, sold $2 billion of dollar-denominated debt due 2020 on March 1 as U.S. banks seek to replace $309 billion of government-guaranteed debt with longer-dated maturities. The New York-based bank last sold 10-year, dollar-denominated notes in May.

Antonio Rivela is a IE Business School Professor.

Comentarios

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