Eurozone debt bomb reaches land down under- Australian bonds head for implosion?

November 23, 2011 – SYDNEY – The European Union’s crisis of confidence has reached the distant shores of the local dollar debt market as once-unimpeachable EU institutions suffer huge rises in borrowing costs. The last few days have seen a dramatic deterioration in the market for even the highest-rated EU sellers of kangaroo bonds, paper denominated in Australian dollars and sold in Australia by foreign firms. The starkest example was the European Investment Bank (EIB), a triple-A credit funded by all 27 members of the euro zone and one of a group of borrowers known as supranationals. Yields on its 2020 kangaroo bond have climbed 90 basis points in just the past week to reach 6.82 per cent, the highest in seven months and easily the steepest rise in the bond’s life. The EIB paper is now paying a premium of 292 basis points over comparable Australian commonwealth government bonds (ACGB), a huge swing from just 135 basis points at the start of the month and the widest spread on record. In comparison, the Asian Development Bank’s 2020 kangaroo bonds pay only 102 basis points over ACGB, and even the African Development Bank 2016 issue has a spread of 125 basis points. “The EIB 2020 issue continues to find few friends in a market that has lost interest in anything with the word “European” in its title,” said Sean Keane of Triple T Consulting, who works on behalf of Credit Suisse. “Despite the sovereign backstop that the EIB has in terms of funding, the market is concerned about the European lending exposure that the EIB holds,” added Keane. “Having watched what has happened to bigger and more liquid sovereign bond markets investors appear unwilling to risk their capital – even at these yields.” The latest wild moves were made on very little volume as liquidity had evaporated, with plenty of would-be Asian and Japanese sellers but no buyers. One dealer at a European bank said the market had become so illiquid that he saw the spread on EIB bonds widen 45 to 55 basis points in a single trade. “The EIB has gone out a hell of a lot,” said the dealer. “People are concerned about Europe, full-stop. That’s why they’re selling.” -SMH 

Spain’s borrowing cost skyrockets: Spain’s new government had a baptism of fire in the markets yesterday — it was forced to pay a 14-year high to borrow. European shares declined for a fourth consecutive session yesterday, with banks falling after record-high yields at a Spanish debt auction. As the debt spirals out of control, the IMF announced dramatic changes to its rules to make it easier for countries in trouble to tap emergency loans. The latest developments come as the debt markets look increasingly like they did prior to the financial crisis in 2008 when global lending shut down following the collapse of Lehman Brothers. That lending strike led to a global financial meltdown. Yesterday, Spain’s government paid 5.11pc to borrow for just three months, double what it paid just a month ago. Belgium, which has a high level of debt but no deficit issues, was also hit hard by rising debt costs. France is under pressure and Italy’s access to loans at viable rates hangs in the balance. –Independent