Home / Business / UPDATE 3-Portuguese worries strike direct during Greek debt sale, hash periphery

UPDATE 3-Portuguese worries strike direct during Greek debt sale, hash periphery


* Portugal’s worries about BES organisation have regional
reverberations

* Greek three-year debt sale sees lifeless demand

* Irish, Spanish sales go uniformly as markets differentiate

(Adds some-more fact on Portugal, uninformed comments, updates prices)

By Marius Zaharia and Emelia Sithole-Matarise

LONDON, Jul 10 (Reuters) – Concern about a health of a
parent association of Portugal’s largest bank harm holds from the
euro zone’s periphery on Thursday, curbing direct during Greece’s
second debt sale following a 2012 default.

It was a initial poignant part of contamination for
peripheral markets in 2014. Debt yields in those markets reached
record lows in a initial half of a year, helped by ultra-easy
European Central Bank policies that let countries sell debt
easily regardless of their ratings or mercantile situation.

Espirito Santo Financial Group, a largest shareholder in
Portugal’s Banco Espirito Santo, pronounced on Thursday it
had motionless to postpone a shares and bonds, citing “material
difficulties” during a primogenitor company, ESI.

Separately, Portugal’s holds marketplace watchdog, CMVM,
said it was analysing a vital investment by Portugal Telecom
in a debt of Rioforte, a holding association of the
Espiroto Santo group.

Sources told Reuters on Wednesday that Espirito Santo was
considering debt-for-equity swaps and might ask for some-more time to
repay debts, as it grapples with a financial problems.

The supervision in Lisbon has regularly pronounced that BES is
isolated from a holding company’s problems and there is no
risk to open finances. However, a misunderstanding has led to a sharp
sell-off in Portuguese supervision holds and had repercussions
for other markets as well.

Greece’s sale of three-year holds drew common demand
compared with new offerings from euro section peripheral
issuers. Athens lifted 1.5 billion euros, good subsequent a 2.5
billion to 3 billion euros it was widely approaching to achieve.

Total bids were usually 3 billion euros. That looked lacklustre
to many marketplace players who are used to saying sequence books
several times that distance during a marginal euro section debt sale.

Spain’s Banco Popular Espanol, meanwhile, was forced to
postpone a sale of fortuitous automobile debt citing poor
market conditions, according to a lead manager on a planned
deal.

Guido Barthels, arch investment officer during Luxembourg-based
Ethenea, was primarily meddlesome in a Greek bond sale yet was
put off by what was function in Portugal.

“It is not a good day to come to a marketplace for Greece,”
Barthels said. “Given what’s function in Portugal, it does not
make a whole lot of clarity to reason that.”

Yields on Portuguese 10-year holds rose 21
basis points to 4.01 percent, boring their marginal peers
with them. Greek yields were 20 bps aloft during 6.32
percent. Spanish and Italian yields
rose 6 bps to 2.82 and 2.94 percent, respectively.

Some marketplace participants pronounced contamination from Portugal
appeared overdone.

“We do not consider a problems emanating from a BES
debacle should be seen as a systemic emanate for a sovereign,
and feel that a contamination effects are trite and likely
exacerbated by positioning and bad liquidity,” pronounced Martin
Harvey, European bond manager during Threadneedle Investments.

“Having pronounced that, it is a sign that marginal nations
will continue to face occasionally mini-crises due to a deep
structural problems their economies and financial systems face.”

DIFFERENTIATION

The Greek bond was sole during a produce of 3.50 percent, the
lower finish of a 3.50-3.625 percent cost guidance. That is higher
than those offering by all 10-year euro section holds detached from
Portugal’s.

Investors in Italian debt, for example, would have to buy a
15-year bond to get a aloft produce than Greece’s three-year
paper. German 30-year paper offering 2.16 percent.

Market movement suggested that investors were still
differentiating between marginal markets, though.

Aid-receiving Greece and Portugal, that emerged from its
bailout reduction than dual months ago, were seen as a most
vulnerable. Irish 10-year yields were 2 bps adult at
2.34 percent; a nation saw record low borrowing costs during an
auction of 500 million euros in 10-year bonds.

Spain also reason a well-spoken sale of 1 billion euros of 10-year
inflation-linked bond during an normal produce of 1.46 percent.

“We’ve seen a really clever sale in Ireland,” pronounced Michael
Michaelides, rates researcher during RBS. “The broader correlation
still stands in a periphery  yet now we see increasingly
that when there is a sold story in one country, that
market moves a lot some-more than a others.”

That split will final as prolonged as a euro zone
stays transparent of any systemic risks, such as those in 2012, when
Greece was on a margin of crashing out of a banking union
following a default.

Greece’s bond sale is a hallmark of a recovery. The
country is solemnly rising from a six-year retrogression and is
running a bill over-abundance before seductiveness rate payments.

But a new bond comes with a caveat. One of a most
attractive facilities of Greek debt before this sale was that the
country had no debt to compensate behind for a subsequent 5 years, hence
no near-term financing risk.

In comparison, half of a total debts of Italy and Spain
expire in a subsequent 5 years.

In a subsequent 3 years, Greece will have to confirm which
path to take after a finish of a second bailout understanding with the
International Monetary Fund and a European Union. It will also
have to reason elections in 2016, or progressing if a frail ruling
coalition loses even some-more strength.

Anti-bailout revolutionary celebration Syriza did good in a May
European Parliament elections and is approaching to keep its
support from a race deeply harm by austerity. Bondholders
prefer a predictability of a pro-bailout government.

(Editing by Larry King and Anna Willard)

Article source: http://in.reuters.com/article/2014/07/10/markets-bonds-euro-idINL6N0PL4RM20140710

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