Morningword: Break A Leg

by CC July 6, 2011 8:46 am • Commentary

Seeking Alpha

Today’s Markets

  • In Asia, Japan +1.1% to 10082. Hong Kong -1.0% to 22518. China -0.2% to 2810. India -0.1% to 18727.
  • In Europe, at midday, London -0.6%. Paris -0.5%. Frankfurt -0.1%.
  • Futures at 7:00: Dow -0.2%. S&P -0.45%. Nasdaq -0.2%. Crude -0.6% to $96.30. Gold flat at $1513.


Ratings agency Moody’s downgraded Portugal’s government debt on Tuesday, citing growing risks the country will require a second rescue package because it cannot meet its debt reduction targets.

Moody’s Investors Service [MCO  38.87  -0.14  (-0.36%)   ] cut its rating by one notch to Baa2 from Baa1 and said in a report that it was increasingly unlikely that Portugal would be able to borrow money on capital markets in 2013, as planned.


European sovereign CDS and bond spreads are blowing out this morning, in what some are saying is a delayed reaction to yesterday’s downgrade by Moody’s of Portugal but seems to be driven by something more dramatic than that.

This is a bit of a surprise — Portugal was already trading as a junk-rated credit, and the downgrade really doesn’t matter anyway. I guess another, less likely culprit could be a line in this Bloomberg report about a research note saying Ireland could be the next to get hit with a downgrade.

It’s possible the downgrade to junk could be leading to some forced selling of the debt, colleague Matt Phillips notes.

Anyway, whatever the reason, Portugal’s 2-year spread against bunds is out 274 basis points, and the 2-year debt is yielding 15.1%. Irish debt yields 14.4%, out 183 basis points against bunds, and Greek debt is at 27%, out 115% against bunds. Greek 2-year debt trades at 68 cents on the dollar, while Portugese and Irish 2-year debt is trading at 81 and 85 cents, respectively.

Ten-year debt is even more distressed for the three little PIGs, with all three trading below 60 cents on the dollar. Greece, Portugal and Ireland 10-year debt yields 16%, 13% and 12%, respectively, and those spreads are wider against bunds today, too.

If there’s any saving grace, it’s that Spain’s debt isn’t yet moving this way, suggesting the contagion is, for now, limited to the worst of the worst.

But Spanish 5-year CDS spreads are out 9% this morning, suggesting that market is a little more nervous.

In fact, the CDS market is flat-out going haywire this morning. Portugese CDS spreads are blowing out even more, up 14.5%. Italian CDS spreads are up 11%, Irish CDS spreads are up 9%, and Greek spreads are up 8%.

Even the safer countries in the eurozone are suffering in the CDS market, with Germany out 11% and France out 7%.


The People’s Bank of China hiked lending and deposit rates by 25 basis points on Wednesday, marking the third such adjustments this year, coinciding with recent comments by senior Chinese leaders on the need to maintain price stability. The move, effective July 7, will bring the benchmark one-year lending rate to 6.56% and the one-year deposit rate to 3.5% according to statement published on the central bank’s website.

Bonus Broken Leg

Thomas Levet will miss golf’s British Open after sustaining a small shin-bone fracture three days ago jumping in a lake to celebrate his French Open victory.

The Frenchman, 42, will undergo surgery tomorrow and be sidelined for six weeks. The British Open will be played July 14-17 at Royal St. George’s in Sandwich, England.

“I will have screws and a plate inserted which will ensure that my shin recovers completely,” Levet, second to Ernie Els at the 2002 Open after a playoff, said in a statement. “I will be off six weeks, which is very bad timing with so many important tournaments coming up. However, the wonderful memory of winning my national Open will definitely keep me going through my recovery.”