Tuesday, April 27, 2010

Europe- Greece “Contagion is becoming a very real concern”

· Europe – spreads across the board were wider in Europe over night and this was mild overhang for US equities in the morning; however, stocks really started to break lower as SO&I came out and downgraded both Greece and Portugal. Greece was cut to junk, which is raising significant worries about the ability of Greek banks to usages at the ECB collateral window. “Contagion is becoming a very real concern” as the focus spreads from Greece to other countries. Investors are still waiting to hear specifics on the EU/IMF aid package while Germany shows signs of dragging its feat. A Reuters article has revealed that EU/IMF talks we/Greece could wrap up by May 2, we/Euro zone leaders talking May 4 and then a vote by Euro nations taking place on May 10 (this timetable would accommodate Greece’s May 19 debt payment). CDS spreads continue to explode wider – Greece is out 66bp to 800,Portugal is out 34 to 342, Ireland is out 20 to 213, Spain is out 16 to 191, Italy is out9 to 148 (quotes as of 11:40amET). Of the ~50 countries listed on Bloomberg (undercover), Greece is #3 on the list when ranked by widest CDS (behind only Venezuela and Argentina).

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