Where there is the European Central Bank’s full capacity of purchasing short-term State debt, there is hope. Even the primary market has opened, although by understandably timid measures, for southern euro zone debt issuers at a sub-sovereign level like State agencies and autonomous regions. The financial City of Madrid expects this window of opportunity to expand and demand of government bonds to improve as it is already happening to banks and corporations.
Yet, the gap of mistrust still remains wide enough for financial and sovereign entities to be cautious. Analysts in Madrid said Tuesday that only big companies have during the last 18 months dared to maintain their presence and tap market credit. In fact, Spanish regions for instance aren’t expected to offer bonds this year. Banks will return in the third quarter.
The cost of protection or Credit Default Swaps on 5-year bonds sold by Ireland, Portugal and Spain has fallen, too. The evolution has brought CDS’ premiums even under the point marked after previous long-term refinancing operations with which the central bank injected liquidity into the euro banking system.
“Nevetheless, for this correction to last the monetary authorities’ commitment will not be sufficient,” Afi experts said in an investor note today. “Plans to cut down public spending and rebalance the economies in the euro periphery with core euro countries’ are a must.”
Link Securities in Madrid concurred. Its analysts said the new programme of action announced by governor Mario Draghi will prove particularly positive for peripheral countries,
“but it only gives them more time. Governments need to take action soon, because the crisis won’t sort itself out.”