Futures sold off a bit early in the evening on the back of Moody’s Downgrades which weren’t that important since they left France and the UK alone and only played catch up with S&P on the rest and they already had Portugal as junk so not a big change.
Comments coming out of Germany didn’t help either. The Germans seem to be saying what we all know, that they have no confidence in Greece being able to perform up to its expectation. Nevertheless, the market continues to believe (probably rightfully) that the EU will pretend and extend. The lack of official PSI proposals continues to be strange if nothing else. According to one timeline, bondholders would have until March 9th to decide to participate or not. If a CAC isn’t implemented before then, that seems to be cutting the timing very thin. There is some chance, that some judge in Greece might decide it is illegal, or at least halt it until it is reviewed. How can anyone need so long to send a proposal, and why would anyone need so long to review at this stage? Just weird.
The markets bounced a bit on the back of successful auctions from Italy. Ok, that makes sense. Spanish bond yields seem to have been leaking for the past week or so and while still trading at lower yields than Italy, they are starting to converge with both seeing bond yields move higher, just Spanish yields moving higher faster. Small so far, and not a big concern, but worth watching. Spanish banks continue to increase their ECB borrowing – look for them to participate in the next LTRO in a meaningful way.
On a positive note, Greece looks likely to meet Troika expectations that GDP will return to growth in 2013. With a -7% 4th quarter print, and no indication that the first quarter is any better, but 2013 the GDP will be so small that it can only go up. This is the first quarter in the past year where GDP slowed at a faster pace than the prior quarter (the opposite of green shoots). The debt to GDP ratio will continue to be ugly because the GDP is declining. Any chance that the 1st quarter is at a -10% rate? I’m not sure whether GDP will grow or not in 2013, but it looks like the base will be so small that any and all Troika calculations will be off.
Main, Fins, IG, and HY are all off their early morning tights and seem to be trading weak.
Chesapeake issued an interesting (weird) bond. It has maturity of 2019, it is not callable until November 2012, and then is callable at par between November 2012 and March 2013, and then goes back to being non-callable. They needed the money but hope to sell the Permian, so want to have the ability to pay these back at par if they do. This is a difficult bond to model up, but I suspect should be a favorite of people playing debt vs equity and in option land as a catalyst for the stock and credit spreads will have minimal impact on these bonds. They seem like a great short against a long position based on hopes of an asset sale. If they aren’t called, they look dirt cheap compared to the 2021 bonds. Again, just a bit weird, but at least this one presents some interesting trading opportunities. Natural gas futures continue to be exciting to watch, and although the volatility has decreased a bit, 2% swings happen regularly. It seems like a base if forming, though every bounce looks like it is met with selling from companies hedging production. Too many people “know” UNG underperforms, but don’t “know” if it is priced in or not.