Reuters Insider - Inside the News: Portugal's Secondary Debt Market Seen Key
13/06/2016 11:08
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Description: Strong demand in Portugal's debt auction on
Wednesday may not be the best guide to the
likelihood of a bailout if Greece and Ireland are
any guide, says Reuters Markets Editor Jamie
McGeever.
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Transcript (May be auto-generated)
0900 GMT. Nerves on edge ahead of Portugal's first debt auction of the year. The
Euro finding a bid after EU Economic Affairs Commissioner Olli Rehn says the
size and scope of Euro zone rescue funds should be widened but trade very low
with only 6% of a usual day's order flow through so far. Portugal likely to pay
record high premiums at today's auction of up to EUR1.25 billion in 2014 and
2020 bonds. The sale is being seen as a vital test to Portugal's ability to
raise funding as pressure mounts on the Iberian country to accept an
international bailout. Traders say if the yield is above 7%, Lisbon will have to
call for help. Economists at Unicredit estimate that Portugal could need EUR60
billion of aid. Reuters Economics Editor Jamie McGeever joins us now. Jamie,
based on what we saw after Ireland's auction and Greece's auction, what can we
expect on the auction itself and in the secondary market? Well Axel, if Greece
and Ireland is any guide to their last debt sales before they were forced to
seek international financial aid, then what you may see from Portugal today is
strong demand at the auction but yields and CDS rising in the secondary market.
A look back at Greece, their syndicated 10-year bonds in March 2010, was more
than three times subscribed. But yield shot up very, very shortly afterwards
from 6.2% in March to over 10% in May when they were forced to seek aid. And CDS
soared from 280 basis points up to around 1,000 basis points. And in Ireland in
September they saw EUR1.5 billion of bonds. Demand was strong, bid-to-cover
three and up to five times bid for the paper. Yet 10-year yields rose around 70
basis points in the week that followed. So what we may see today is the focus
very much on the auction. But the secondary market will be much more important
for what happens to Portugal afterwards. Okay Jamie, many thanks.
German full-year GDP came in at 3.6%, the fastest growth since reunification and
in line with forecast. That compares to a drop of 4.7% in '09. Folker Hellmeyer,
Chief Analyst at Bremer Landesbank, says the outlook continues to look good.
There is more room to the upside. And the global growth picture remains intact
with the IMF's calls of 4.2%. We are even there more positive. We see a pattern
of 4.75%. And that will give the German export business a strong stimulus. But
the consumption side would be the second leg, which really carries this upswing.
European equity markets after the first hour of trade right now up 0.9%,
1,157.63 for the FTSEurofirst 300. Shares of EADS are up after Airbus unveiled
what it called the biggest jet order in commercial aviation history, $15.6
billion deal to sell 180 planes to Indian budget carrier IndiGo. And oil prices
holding at more than 2-year highs on supply disruption caused by shutdowns in
Alaska and Norway. Brent is hovering just above $98 a barrel for the first time
in 27 months.
The huge Australian floods have shut down the center of Australia's third
largest city Brisbane, thousands fleeing from their homes and nearly 70 people
now missing; 16 people have so far been killed. Coal prices have hit a 2-year
high as the floods bringing the coking coal industry almost to a standstill. The
Australian Dollar sank to a fresh 4-week low. A Central Bank board member said
the disaster could cut 1% off growth, double the previous highest estimate.
That's it. Coming up on Insider as markets await the US Department of
Agriculture's key global grains and oilseeds report at 1330 GMT, soaring food
prices are stoking fears of a repeat of the '07-'08 food crisis which sparked
violent protests. Tune in at 0930 GMT for a Reuters Insider special on food
inflation. And stay with us for updates on the hour. I'm Axel Threlfall. This is
Reuters