|10-year Portuguese Bond Yield (Bloomberg)|
The 10-year French OAT yield opened at 3.06%, hit a high of 3.12%, but then closed at 3.03% (price moves inversely with yield). And the 5-year French OAT yield spiked to 2.05% at the open and then closed at 1.86%. The 10-year French-German yield spread opened around 1.35 but then tightened to 1.26 at the close. On the other hand, Portugal's government bond yields spiked after S&P downgraded the country to junk. The 10-year Portuguese bond yield opened at 12.65% and rose all the way up to 14.40% to make a new high.
EUR/USD initially rose to test the death channel's downtrend line when the ECB kept rates unchanged (read ECB President Mario Draghi's introductory statement and press conference transcript Q&A -link), but then rumors of a French downgrade sold EUR/USD all the way down to around Aug 2010 support (1.2587), hitting a low of 1.2644.
|EUR/USD (source: FreeStockCharts.com)|
Wow, at 9:32pm it seems like EUR/USD is shaking everything off, up 0.53% at 1.2713. It could perhaps test the downtrend line again. Some strategists, economists and money managers believe EUR/USD will hit 1.0-1.20 by the time this is all over. On BloombergTV today, Moritz Kraemer, managing director of European sovereign ratings at Standard & Poor's, discussed the downgrades and said Greece will default shortly, but the hope is that it won't be disorderly. Here's a quote from the video.
"Well we think by our definition Greece will default very shortly because even the debt exchange that is being proposed is a default. By our definition it's a distressed exchange. Whether there will be a solution at the end of the current rocky negotiations, I cannot predict. There's a lot of brinkmanship going on right now. We think there's a lot at stake. And policymakers across Europe will be aware that if you have a disorderly default of Greece in March when a large bond comes due and cannot be refinanced, that the ramifications for other countries in the eurozone could be substantial. And I think there's a great political will to try to avoid the situation. So the game is still on. The negotiations may drag on for a little bit longer, but slowly but surely the two parties are running out of time."
This is why I keep blogging about the euro. Below are links to S&P reports and articles on the credit rating actions:
- France's Unsolicited Long-Term Ratings Lowered To 'AA+'; Outlook Negative* (S&P)
- Moody's Says France Still Under Pressure (WSJ)
- S&P downgrades EFSF to AA+ from AAA (Fxstreet)
- Moody's maintains French AAA rating for now (AP)
- Spain's Ratings Lowered To 'A/A-1'; Outlook Negative (S&P)
- S&P downgrade is nail in the coffin for EFSF (Euromoney)
- Stiglitz says European austerity plans are a 'suicide pact' (Telegraph)
- Italy's Unsolicited Ratings Lowered To 'BBB+/A-2'; Outlook Negative (S&P)
- Portugal's Ratings Lowered To 'BB/B'; Recovery Rating Of 4 Assigned; Outlook Negative (S&P)
- Austria's Long-Term Ratings Lowered To 'AA+'; Outlook Negative
- Moody’s: A larger than 50% haircut would be credit negative for Greek banks (Capital.gr)
- Standard & Poor's arious Rating Actions On 16 Eurozone Sovereign Governments (S&P)
- Credit FAQ: Factors Behind Our Rating Actions On Eurozone Sovereign Governments (S&P)