1. Private Greek Creditors Say ECB Should Shoulder Part of the Costs of Restructuring
We have been following the stalled status of the Greek debt restructuring negotiations this week, and the key development overnight was the insistence by private Greek bondholders that those bonds in public hands - at the ECB mainly - should also take losses. The ECB has flatly rejected that idea, but the IMF's Lagarde says it may have to relent if its the only way forward.
From Bloomberg: The European Central Bank remains firmly opposed to any restructuring of its Greek bond holdings as the debt was acquired for monetary policy purposes, according to two people familiar with the Governing Council's stance.
While the ECB faces pressure to join private-sector investors in taking losses on Greek debt, the central bank sees this as potentially damaging to confidence in the institution if it were to take part, said the people, who declined to be identified because the matter is confidential.
International Monetary Fund Managing Director Christine Lagarde said today that European governments and other public holders of Greek debt may have to increase support if private creditors don't go far enough. Investors and European finance ministers remain at odds over how much private investors should shoulder in the Greek bailout.
2. Portugal Fears Grow, Borrowing Costs Hit Record High
Yesterday we also saw the pick-up in concerns around the need for a second Portugal bailout as the economy stalls and it may not be able to tap credit markets next year. The Portugal Industry Confederation Chief said that the country needs an additional €30 billion in EU/IMF funds to solve the crisis. The market has responded by dumping the country's bonds causing yields on 3-year notes to hit a fresh record high.
Portuguese three-year bond yields leapt to 19.43 per cent, the highest on the country's yield curve because expectations of a default over this time are considered high by many investors and bankers.
Portuguese credit default swaps rose to 1,326 basis points, or a theoretical cost of $1.32m to insure $10m of bonds annually over five years.
3. Merkel Casts Doubt on Saving Greece
In an interview with the Guardian and other newspapers, Angela Merkel cast some doubts on the way European politicians have handled the euro-zone crisis, with her main concern being that all the efforts attempted in the last 2-years have not created the conditions to help stave off a messy default in Greece. Merkel is trying to rally Euro-zone countries to pass the fiscal compact in the upcoming EU Summit, but is reluctant to offer more funds to help boost bailout funds, and to create a big enough firewall to stem any contagion that may spread from Greece and other weaker nations to Italy and Spain.
From The Guardian: Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion bailout coupled with savage austerity was not working after two years of crisis that has brought the single currency to the brink of unravelling.
We haven't overcome the crisis yet, Merkel said. Of course, there's Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilise the situation.
4. Germany Sells 30-Year Bonds With Good Demand
While investors may have been dumping Portuguese notes, they were busy buying German long-term bonds as demand remains strong for safe haven assets.
From Financial Times: Germany successfully raised €2.55bn in 30-year bonds with relatively strong demand. The auction highlighted the continuing attraction of Bunds amid improving sentiment in the eurozone.
Germany sold the bonds at a yield of 2.62 per cent, close to record lows in the secondary market. The bid to cover ratio was 1.68 times, substantially more than at the last auction of 30-year bonds in October, which was considered a failure by the market.
For a technical analysis look at EUR/USD see today's technical update: EUR/USD Gives Bearish Reversal Signals for the Short-term
Nick Nasad is the Chief Market Analyst at IBTrade and FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.