This little piggy went to market
Italy and Spain are both set to launch syndicated bond sales today, taking advantage of temporarily benign market conditions and maybe with a weather eye on the U.S. debt stalemate which could soon throw the world’s markets into turmoil with an Oct. 17 deadline fast approaching.
After Silvio Berlusconi’s failure to pull down the government, Italy’s political crisis is in abeyance for now and its bond yields have eased back. Spain has issued nearly all the debt it needs to this year already.
It’s not quite “crisis what crisis” but the news flow has been largely positive:
- Portugal (after its own self-inflicted political crisis over the summer) has seen its borrowing costs fall to their lowest in more than a month after its EU/IMF lenders said it was meeting its bailout goals.
- Greece is predicting an end to six years of recession in 2014 and, just as importantly, a primary surplus.
- And the IMF yesterday predicted Italy, Spain, Portugal, Greece and Ireland (which will soon become the first euro zone member to exit its bailout programme) would all grow next year.
So it shouldn’t be a surprise that Italy will offer a seven-year bond while the Spanish Treasury mandated banks for a 31-year bond, the first of such a long maturity since 2009. Some of Spain’s biggest companies – Santander, Gas Natural and Telefonica – have also forayed into the debt market.
In a sign of how far Madrid has come since a bailout was seen as all but inevitable a year ago, the government has also toyed with the idea of issuing a 50-year bond at some point.
Italy’s debt agency has said it detected growing appetite for a seven-year maturity. It is also due to sell one-year bills on Thursday and up to 6 billion euros of fixed-rate bonds and floating rate certificates the following day. Following a recent upgrading of its borrowing needs, Rome has to shift about another 90 billion euros by the year-end.
The governing coalition might have survived but its disparate parts are still at odds over tax policy and have to agree on a credible 2014 budget. Today, ministers will meet to try and agree on measures to meet this year’s budget deficit target.
And while the working assumption is that U.S. politicians will step back from the brink, if they don’t, all bets are off.
Barack Obama’s decision to nominate (dovish?) Janet Yellen to head the Federal Reserve from next year will balance out market angst about the ongoing U.S. government shutdown for now.
The fact that the political standoff has pushed back the point at which the Fed could start slowing its dollar-printing has helped keep markets relatively calm. But that will only apply if the U.S. avoids a default, which would be an astonishing case of “won’t pay” rather than “can’t pay”.
France, where the central bank is forecasting growth of just 0.1 percent in the third quarter, is not in crisis mode but is also far from blooming health.
President Francois Hollande is in Brussels for talks with European Council President Herman Van Rompuy with officials in Brussels not doing much to hide their disappointment at the pace of economic, labour and pensions reform he has been prepared to countenance. The pair are also likely to discuss banking union, plans for which have stalled while Germany’s party try to construct a coalition government under Angela Merkel.
Figure of the day is German industrial output for August which is forecast to jump after a poor showing in July. However, the same was said about industry orders figures on Tuesday and they dropped unexpectedly, although the two-month average showed a small level of growth.