In Between Days: China Is Not The Issue Here

by CC September 13, 2011 1:39 am • Commentary


U.S. stocks rose, reversing losses in the last 90 minutes, as concern about Europe’s debt crisis eased following a report that Italy was in talks with China about possible investments. Treasuries fell after the 10-year note yield reached a record low. The euro pared losses.

The Standard & Poor’s 500 Index rose 0.7 percent to 1,162.27 at 4 p.m. in New York. The 10-year note yield increased three basis points to 1.95 after touching an all-time low of 1.877 percent. The euro was little changed at $1.3662 and was down 0.4 percent versus Japan’s currency after slumping as much as 2 percent to a 10-year low of 103.9 yen. Silver and gold fell more than 2 percent to lead commodities lower.

Stocks recovered, with the S&P 500 erasing a 1.6 percent drop, after the Financial Times reported that Italy’s government was in talks with China Investment Corp. about “significant” purchases of Italian bonds and investments in strategic companies. Earlier losses were triggered by concern Greece was moving closer to default and a surge in yields at an Italian bond auction.


CDS on Greek sovereign debt are more routinely being quoted via a market convention known as “upfront points,” according to data provider Markit. That means sellers of default protection are demanding a slug of money at the inception of a trade to account for the country’s worsening credit risk.

Greece isn’t the first sovereign to have its CDS trade “upfront” — Venezuela has been for a good while, says Markit. Greece has been do so for a few weeks now, and the frequency by which protection sellers have quoted the contracts that way has been growing, Markit says.

At 56.5 points upfront, protection against a Greek default on $10 million of debt over five years now costs $5.65 million at inception, plus $100,000 a year.


U.S. money-market fund managers, led by Vanguard Group Inc. and Legg Mason Group Inc., have cut their lending to French banks at a pace that may force the banks to raise capital by selling assets, according to William Prophet, a desk analyst at Deutsche Bank Securities Inc.

Prime money funds in the U.S. reduced their holdings in certificates of deposits issued by French banks by about 40 percent in the three months through Aug. 11, Prophet wrote in a Sept. 9 report, based on a review of seven of the 10 largest funds eligible to purchase corporate debt. The proportion of the remaining holdings maturing in less than a month increased to 56 percent on Aug. 11 from 17 percent on June 11.

Der Spiegel

The rest of the euro zone is losing patience with Greece. German Finance Minister Wolfgang Schäuble is no longer convinced that Athens can be saved from bankruptcy. His experts at the Finance Ministry have been working on scenarios exploring what would happen if Greece left the euro zone.