The yield on 10-year Spanish bonds has fallen
for the second day in a row,
and now sit at 6.4% according to Bloomberg.
Yesterday's news was ECB to relax loan rules for Spanish banks
an ECB executive board member, told the Financial
Times in an interview this week:
“We certainly have
to make sure that sound counterparties have the means to access our liquidity, including in terms of collateral availability.“
He warned that collateral buffers had “become more strained in some places” and added:
“There is an ongoing
reflection on how to alleviate
However, the debate is sensitive within the ECB council, with many of its members
worried about the risks involved and the dangers of substituting
actions by governments to strengthen
The decision on the use of asset-backed
securities – bonds backed
by loans – was taken separately from the wider review of collateral rules and appears designed to buttress efforts by
eurozone authorities to strengthen Spain’s banks. Under the new rules, such securities will be eligible
for use as collateral providing
they have a credit rating
of at least BBB (minus), according
to eurozone officials. Previously, the minimum requirement
was for at least an A
In his FT interview, Mr Cœuré
warned that changes to
the ECB’s collateral
rules would “have
to come with strict risk
control, in particular with
Lie of the Day
It's more like lie of the
day than laugh of the day as Madrid moves to ease bailout fears
Spain has sought to
ease investors’ fears that it
needs a full-scale
international bailout of its
economy by publishing two “stress tests” showing
that Spanish banks need between
€16bn and €62bn in new capital.
The estimates of how much
extra capital its banks might need fall
well within the sum of up to €100bn that
Spain requested for its financial system from its eurozone partners this month.
Fernando Restoy, deputy governor of the Bank of Spain, said
the numbers were “a
long way from the maximum
that the eurogroup agreed to make available to Spain”.
“The three biggest
groups in the country don’t need assistance in the form of
new capital, even in the stressed
scenario,” he said
in a reference to Santander, BBVA and Caixabank.
Allegedly the three largest banks, created by mergers of smaller insolvent banks do not need any capital at all even though Spain asked for €100 billion and Citigroup thinks the banks need €350 billion.
For the past few days, yields in Spain have plunged from 7.28% down to 6.4% on a packet
of lies and junk. It won't
last, not that 6.4% is remotely sustainable in the
Meanwhile, yield on the 10-year German bond is creeping up.
Why shouldn't yields on German bonds rise? Every step
by the ECB to add leverage
or accept lower rated securities as collateral puts more credit risk on Germany.
For a discussion of credit
risk, please see ...
"Germany is a Credit Risk" Says Bill Gross; Germany Exiting
Eurozone is One of Very Few Scenarios in Which German Bonds Do Well
Discussion of Target2 and the ELA (Emergency Liquidity Assistance) program; Reader From
Europe Asks "Can You Please
Audits Delayed Until September, Another €50
Billion Likely Needed
The only realistic way yields can
fall in Italy and Spain is if they rise
Meanwhile, please recall that on Tuesday we saw this