During the morning markets have been very focused on Portugal. At 3 PM was scheduled to be discussed in the Portuguese parliament the new adjustment plan submitted by the government, so far has been delayed until 6pm Portuguese time, although the new austerity budget is supported by Brussels, it may be rejected by the opposition which could lead to elections since the Prime Minister has threatened that he will resign if that happens.
With this uncertainty in the neighboring country, the market has chosen to sell Portuguese debt; (CDS in Portugal 5yrs break the previous highest and right now is at 539.5) this has extended to other periphery countries.
The domestic market started the day very weak in all references mainly because of this, with higher pressure on the 5 yrs benchmark this boost the yield of Spgb Abr-16 +6bps chg in the day before 10am. In the 10yr reference the spreads vs Germany started to widen massively until midday when it reached the 200bps, this was the turning point where we began to see buyers in Spain. This flow helped the Bonos to close better in the day and recover the losses of the day. Specially in the 10 yrs where 10yrs Spread vs Germany remained flat in the day at 194bps.
I believe that this recovery of Spain is due to two things:
First, people which were short in Spain, had to cover themselves after the delay on the discussion in Portuguese parliament about the measures that Jose Socrates wants to take to reduce the level of deficit in Portugal. Depending on what happens tonight the market will react tomorrow in one way or another.
Second, FED Member Fisher made very bullish comments on Spain, while he affirmed that
“Spain was doing "a very good job" in pushing through economic reforms to restore confidence in its finances” that “Markets are not taking Spanish reform steps sufficiently into consideration” and finally
"I think Spain will surprise people," stressing that it was important to distinguish Spain from other troubled euro zone countries like Greece and Portugal.
Change in yield today were as shown below:
|
| Germany | France | Nether | Austria | Belgium | Finland | Spain | Portugal | Italy | Ireland | Greece |
| 2y | -2.91 | -1.92 | -2.24 | -0.83 | -1.94 | -2.44 | 0.85 | 9.44 | 0.95 | 10.72 | -18.63 |
| 5y | -2.37 | -0.68 | -1.11 | -0.82 | -1.53 | -0.11 | -1.68 | 15.56 | 0.27 | 29.52 | 5.74 |
| 10y | -2.90 | -0.85 | -1.71 | -0.58 | -1.66 | -1.40 | -2.17 | 13.55 | -0.80 | 28.47 | 4.14 |
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