We are down to BBB- from BBB+ with a negative outlook. Still there is uncertainty on what the EU will do to help Greece. Germany is willing to provide help but only at market rates. It is unusual that we have not even seen Greece go to below investment grade yet there is strong opposition to paying the market spread. You have to ask all of the below investment grade countries what they think about this situation.
There is something absurd about the link between the action of ratings agencies, spreads and sovereign risk. The market is pricing in a hefty spread on these bonds relative to a year ago., but 400 bps is not out of sigh for a junk credit. Investors do not believe that Greece will make good on their plans. The rating agencies have been slow to react, so they are saying this is an investment grade credit. It is hard to argue that we are in a crisis if the ratings agencies cannot even come to the point of saying that Greece is below investment grade. Why should they get a discount?
If you have to handicap this process, you should expect some bail-out at good rates and spread tightening.
There is something absurd about the link between the action of ratings agencies, spreads and sovereign risk. The market is pricing in a hefty spread on these bonds relative to a year ago., but 400 bps is not out of sigh for a junk credit. Investors do not believe that Greece will make good on their plans. The rating agencies have been slow to react, so they are saying this is an investment grade credit. It is hard to argue that we are in a crisis if the ratings agencies cannot even come to the point of saying that Greece is below investment grade. Why should they get a discount?
If you have to handicap this process, you should expect some bail-out at good rates and spread tightening.
No comments:
Post a Comment