(BN) Euro-Rescue Fund To Issue New Short-Term Bonds In December

Posted by on Nov 10, 2011 in Uncategorized | No Comments

I am really not sure how this is good news. Is there any doubt that the EFSF could issue short-dated paper at low yields? No. What does this do? Keeps cost of funds down, but not sure how you leverage this – you can’t. Second loss risk couldn’t be based on short-dated first loss risk.

All this would do is shift the roll risk from the country in need to the EFSF. I’m really not sure that is a smart decision. Save 2-3% in coupon in order to increase roll risk and ensure contagion?

This is clearly a “banker” solution and not a “trader” solution. I think this is a bad development.

On a side note, more and more banks are taking decent write downs on Greek debt, and guess what? The world didn’t end. The shares aren’t even that affected because they have been trading at a discount to book for over a year to reflect the mismarking of these positions. How much better off would the system be if they had let Greece default a year ago? Time and again, no one addresses the problem, no one attempts to truly “fix” it, properly, with the costs associated with it, even though in hindsight, it would have been the right decision.

Shifting to shorter term funding for EFSF is a sign of weakness and creates real risk of contagion much sooner than if they stuck to the higher cost, but longer term funding programs.

Euro-Rescue Fund to Issue New Short-Term Bonds in Dec., SZ Says
2011-11-10 19:32:31.432 GMT
By Andreas Cremer
Nov. 10 (Bloomberg) — The European Financial Stability
Facility will issue new short-term bonds with a maturity of
three, six and twelve months from next months, Sueddeutsche
Zeitung reported, citing the bailout fund’s Chief Executive
Officer Klaus Regling.
“Time is running out for Italy to calm the markets,” the
newspaper quoted Regling as saying in an interview to be
published in tomorrow’s edition. “If a country comes and says
we need help straight away, then we are ready.”
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