Moody’s refrained from cutting Spain’s sovereign rating to junk territory last week, easing immediate fears that Spanish bonds could become vulnerable to forced selling if they fell out of benchmark indices, tracked by bond funds, as a result of the grade reduction.
Wall Street firms are begging the U.S. Treasury to take their cash, at least judging by the latest auction of short-term Treasury bills. Treasury sold $30 billion of four-week bills at a “high rate” (pause for laugther) of 0.000% on Wednesday, a mix of strong demand for year-end portfolio shuffling but also a reflection of ongoing fears of a credit crunch emanating from Europe.
The market for U.S. commercial paper, a key source of short-term funding for firms, is signaling fresh distrust of the banking sector. Investors continue to favor commercial paper issued by non-financial companies over those issued by banks, the latest Fed data show. On a non-seasonally adjusted basis, non-financial CP outstanding increased $5.1 billion to $187.1 billion in the week ended Sept. 21, while financial CP rose $3.2 billion to $503.5 billion. Since the end of 2010, the amount of industrial CP outstanding has grown by 65 percent, while the amount of bank CP has contracted by 10 percent.
Greece is in the danger zone. Even as the country’s finance minister sought to reassure his euro zone counterparts at a meeting in Poland, Greek credit default swaps were pricing in a more than 90 percent chance of default, according to Reuters calculations of Markit data. Economists in a Reuters poll see a 65 percent chance of that happening, probably within a year.