Greece Update: Bond Vigilantes Return, Credit Markets Elsewhere Recover, California Bonds in Demand?!

Time to check in with the Greek narrative. The hysteria has quieted down as new backroom deals to avert a meltdown are reported with some regularity.  However, the attempts to sweep Greece’s problems under the proverbial rug are occasionally sidetracked by a pack of rioters, or as is the case below, by the bond vigilantes. If rates continue to creep higher for Greece no amount of posturing will suffice to avert this funding crisis…

Greek borrowing costs imperil budget plans – WSJ

WSJ reports the high interest rates Greece must pay to borrow money are threatening the county’s ambitions to cut its deficit, raising again the specter it may need external aid. Many in Europe breathed a sigh of relief last week when Greece successfully sold €5 billion ($6.85 billion) in government bonds in an auction that saw investors clamoring for the debt. The sale was seen as a key test: The country needs to borrow about €54 billion this year. But debt buyers are demanding higher premiums than officials in Athens anticipated when they planned the 2010 budget, and when they proposed to European Union authorities in January a plan to trim last year’s €30 billion budget gap by €9 billion this year. Indeed, Greece’s filings with the EU rest on assumptions implying that this year and next the country will pay an average interest rate of about 4.7% on its new debt. That figure is consistent with the rates paid on existing Greek bonds, mostly issued in better times. But in last week’s auction, Greece had to pay 6.25% for a 10-year loan—about three percentage points above what Germany pays for similar debt. 

…While the bond vigilantes are alive and well in Greece they are apparently asleep everywhere else.  As the story below describes, credit liquidity has rebounded significantly from the veritable seize up in January and February, which in turn has facilitated an equity market recovery….

Credit market springs to life – WSJ

WSJ reports companies are aggressively borrowing in the debt markets once again—a sign of renewed confidence in the world economy following recent fears that struggling European countries could have difficulty financing their budget deficits. In the U.S., bond sales by companies such as Bank of America Corp. and GMAC Financial Services are on pace to conclude their busiest week since the beginning of the year. In Europe, borrowing by companies so far in March is already more than 60% of February’s totals. “It tells us that financial liquidity is very much on the rise,” said John Lonski, chief economist at Moody’s Investors Service. “No longer do corporations suffer from a dearth of liquidity. This puts them in a better position to take advantage of opportunities that arise.” So far in 2010, U.S. corporations have issued $195.2 billion of debt, excluding government-guaranteed bonds, according to data provider Dealogic, up from $166.8 billion during the same period in 2009.

…In fact, credit investors are so desperate for product it seems anything with a yield will do, as evidenced by the story below….

Buyers scramble for California bonds – LA Times

LA Times reports robust investor demand allowed California on Thursday to increase the size of a bond offering to $2.5 billion from $2 billion. The tax-free general-obligation bonds, which will fund voter-approved infrastructure projects, attracted orders totaling $1.38 billion from individual investors Tuesday and Wednesday. With just $620 million of the original $2-billion deal left, the state took in $3.3 billion in orders from institutional investors Thursday. To fill more of those orders, Treasurer Bill Lockyer raised the deal to $2.5 billion.

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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