Monday, November 07, 2011
And Somewhat Pricey
This is a really big deal - the market ought to be looking for this type of instrument. Demand was solid, but pricing indicated that Mr. Market has some reservations.
The relatively high spread on the new issue “is a complete level-changer, a completely new world for the EFSF,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “This will be the new reference point” for any future 10-year deal, he said.Meanwhile, back at the commodity ranch, prices are rising. The horrific mistake of shunting all the damage on the last Greek deal to private holders has the potential to take out Italy within a year. They have to roll a lot of that debt, and the ECB can buy, but the more the ECB buys, the riskier holding the debt is for a private entity.
The EFSF’s existing notes have underperformed European benchmark debt, with the extra yield over governments on its 2021 bonds widening to 167 basis points, the most since the notes were sold, Bloomberg Bond Trader prices show.
So what happens to all those Italian banks that have a lot in Italian sovereigns?
Plan C is of course to turn the EFSF into a Euro-brand bond pool, but it appears that is likely to be more expensive than planned.
France begins real cuts now - they are moving to try to stem the rise in bond yields relative to Germany.