S&P assures peripheral countries’ debt is safe from the danger zone


The close surveillance which European peripheral countries’ economies endure is part of markets’ daily routine. On Tuesday, Portugal’s and Slovenia’s debt were again at the psychological barrier rate of 7% after accumulating 168 and 110 basis points increases respectively since mid May. Italy’s risk premium recorded a high comparable to that of September 2012 and sold €4.5 billion euros in bonds, but a national broker seemed to spread rumours about a potential country rescue in the next months. Furthermore, the Financial Times mentioned Italian Treasury confidential documents assuring that the country faces the impact of eight derivatives contracts’ reorganisation that hold a notional amount of €32 billion.

Spain got away from bad news. The Bank of Spain earlier on Wednesday said that data from the second quarter of the year point to an “improvement” of most of demand and activity indicators and consequently a “relief of the 1Q contracting trend,” when GDP went down by 0.5%. Regarding employment figures, the institution affirmed that the decrease of social security registrations slowed down by one percentage point and there has been a slight fall in jobless people numbers.

Despite this environment, the head of the sovereign ratings in Europe, Middle East and Africa at Standard & Poor’s, Moritz Kraemer, said that no country is in a position of having to leave the euro zone. He argued that despite recent increases of bond yields even peripheral countries’ debt is “far away from the red danger zone where we were last summer.”

Kraemer also considered very positively the fact that “a lot of those countries have done a lot of pre-funding, so there is no immediate threat to it.” Anyway, S&P’s director for EMEA region analysis did warn that the European crisis as well as the global one still remain unresolved.

Mario Draghi and the European Central Bank have a lot of to say on the next stage of the crisis’ resolution. The institution will meet on July 4 and according to market sources, it could decide to implement a new round of three-year long-term refinancing operations (LTROs) attached to more favourable conditions than the ones currently in place, negative deposit rates as well as asset purchasing actions, some of them focused to specific markets.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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