RESEARCH ROUNDUP: Peripheral Euro-Area Risks Back on Radar
(Bloomberg) -- Greek bonds extend losses as wider risk-off tone weighs on peripheral EGB markets, and ahead of Thursday’s Eurogroup meeting where euro-area finance ministers are expected to seek more clarity on the country’s pension reforms and budget measures.
- The first review of the 3rd Greek bailout program has been stalling since Oct. 2015 over disagreement on pension reform, but the country’ troubled economy is just one of the reasons why the region is back on investors’ radar
- Generic Greek 10Y bonds extend losses, with the yield +61bps at 10.18% and ASE index falls 7.87%, while 10Y PGBs are 25bps higher at 3.38% and Spain’s IBEX 35 is down 4.44%
- Pioneer Investments (Tanguy Le Saout)
- General political climate in Europe continues to deteriorate
- Eurogroup likely to increase pressure on Greece to agree a more radical pension-reform plan than Greece is currently proposing
- Expects noise over Greek reforms to increase over the next couple of weeks
- Says current Greek proposal heavily geared toward revenue increases rather than cutting benefits, and even this plan is facing significant political opposition within Greece
- Pimco (Nicola Mai)
- Spread widening on peripheral bonds offers an opportunity to buy and to add to some existing positions
- It’s hard to predict how long the volatility in bond market will last but it seems that the nervousness is excessive compared with the fundamentals
- Today’s move is probably part of a general risk-off environment rather than any specific change in fundamentals as ECB QE and euro-zone recovery are still in place while the lower oil prices play in favor of economy
- Pimco still favors Spain and Italy bonds
- UBS WM (Ricardo Garcia)
- This is a sellers market, which means investors are looking for the weakest link every day and Greek assets are an obvious target
- The picture in Greece isn’t as bad as the headlines on protests and negotiations between the govt and creditors suggest, Garcia says in interview
- Migration discussions are adding an extra dimension to complex negotiations
- Nonetheless, optimistic as the govt is committed to pension reform and the EC’s feedback said plans are a legitimate basis for a negotiation, showing the parties are much closer than they were a year ago
- Risk of fresh elections in Greece is significant given the very slim govt majority but points out the more radical elements of PM Tsipras’s party have been removed from govt
- Doesn’t expect Tsipras to present the pension plan to parliament until he’s sure it will be passed and the govt won’t fall; negotiations may take longer than some policy makers are expecting
- BofAML (Athanasios Vamvakidis)
- While there are a number of reasons to be pessimistic on Greece in short term, recommend buying the dips as the country is on the path toward inclusion in ECB’s QE program, strategist Vamvakidis says in interview
- Political instability in Greece is clearly a risk in the short term as the govt has a very slim majority in parliament, and it could collapse if they try to get approval for pension reforms and new tax regime for farmers
- There’s a fundamental difference compared to the past; as long as a govt, this one or another one, concludes the review, then it’s likely that by the end of this year GGBs will be included in ECB QE, which is very bullish for Greece
- The best case for Greece this year is QE this summer, the worst-case scenario is QE by the end of the year; no matter how you see it the endgame is QE
- Commerzbank (David Schnautz)
- Both sides, the bailing-out parties and Greece, at risk of ‘losing face’
- Firmly expects the pressure to increase more, as both sides in any scenario must show that they tried their best
- “As we learned in the past, the last meters are always the most difficult ones as only very contentious topics are left on the table”
- BBH (Marc Chandler)
- Real money continues to avoid Greece
- The review doesn’t mean more investors will be investing in Greece
- The immigration issue and potential for EU border policy to limit flows into Macedonia overshadowing the purely economic issue
- Sunrise Brokers LLP (Gianluca Ziglio)
- Greece remains a major scare
- There’s no safe harbor in the periphery and people are becoming increasingly skeptical about what ECB can deliver in March and really achieve
- It may only be the beginning of a new bout of instability, particularly with regard to relationships among member states and the situation in Greece
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Alexis Tsipras (Hellenic Republic)
Athanasios Vamvakidis (Merrill Lynch International)
David Schnautz (Commerzbank AG)
Gianluca Ziglio (Sunrise Brokers LLP)
Marc Chandler (Brown Brothers Harriman & Co)
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