Spain, Portugal Deny Need for Bailouts; Swaps Soar on ‘Sacrosanct’ Senior Europe Debt; Bank of China Adviser Tell US to Sell Gold

Not that anyone can possibly believe these stories, but Spain's Prime minister says "says no chance Spain will need bailout".

In other humorous news on this Black Friday, Portugal denies the need for a bailout, and the always late S&P drops Anglo Irish Bank six notches to a junk-bond B grade.

Topping off the humorous news stories of the day, an adviser for the PBOC tells the US to sell gold to balance its budget.

Spain "Absolutely" Rules Out Bailout

Spain's Prime Minister says says no chance Spain will need bailout

Prime Minister Jose Luis Rodriguez Zapatero said Friday there was no chance Spain would seek a bailout. Asked in an interview on Spain's RAC 1 radio if he ruled out financial help from the European Union, Zapatero said "absolutely."

The markets were not convinced, however. The yield on Spain's 10-year bonds rose to nearly 5.2 percent Friday. Germany's 10-year bonds, a benchmark of lending safety, stood at 2.7 percent, bringing the spread against the Spanish bonds to 249 basis points, among its highest since the euro was introduced in 2002.

Portugal Denies Bailout Talk

The odds Portugal is not in some kind of discussion with the EU regarding bailouts seems rather slim, yet Portugal Denies Bailout Talk

The epicenter of Europe’s sovereign-debt crisis shifted from Ireland to the Iberian peninsula on Friday, with European Union, Portuguese and Spanish officials scrambling to head off speculation that Lisbon or Madrid could soon be forced to seek help to meet their borrowing needs.

A spokesman for the Portuguese government said a report in the Financial Times Deutschland newspaper -- that Lisbon was under pressure from the European Central Bank and a majority of euro-zone countries to seek a bailout in order to ease pressure on Spain -- was “totally false,” news reports said.

News reports, meanwhile, said that Germany this week rejected a suggestion by the European Commission to double the size of Europe’s 440 billion euro ($588 billion) bailout fund for euro-zone governments. The euro-zone contribution is part of the total €750 billion rescue program put in place with the International Monetary Fund in the spring.

“Our strong conviction is that this is going to be enormously challenging unless new money is put on the table,” said James Nixon, European economist at Societe Generale, in a research note.

My strong conviction is that the more money the EU puts on the table to rescue the PIGS, the more money will ultimately go up in smoke.

Anglo Irish Bank Drops Six Notches to Junk-Bond B Grade

The never on-time and totally useless rating agency S&P cuts ratings on Irish banks; Anglo deemed junk

New York-based S&P said in a statement Friday it was lowering Anglo Irish Bank six notches to a junk-bond B grade. It also cut the ratings on Bank of Ireland and Allied Irish Banks one notch each to BBB+ and BBB, respectively.

Junior bondholders at Anglo already have been forced to accept losses of 80 percent to 95 percent on their loans.

Swaps Soar on ‘Sacrosanct’ Senior Europe Debt

Bloomberg reports Swaps Soar on ‘Sacrosanct’ Senior Europe Debt

The cost of protecting against defaults on senior notes of European banks is soaring on speculation bondholders will be forced to take losses as governments try to share the burden of taxpayer-funded bailouts.

The Markit iTraxx Financial Index of credit-default swaps on senior debt rose 6.5 basis points, or 0.065 percentage point, to 157.5. basis points. Contracts on Portugal’s Banco Espirito Santo SA are at a record, and Spain’s Banco Santander SA are at the highest level in five months.

“Under a ‘bail-in’ regime, senior bondholders will most likely find themselves as potential burden-sharers, which is in stark contrast with the rules of engagement of the market hitherto,” Roberto Henriques, an analyst at JPMorgan Chase & Co. in London, said in a research report. “Even at the worst point of the current crisis, it was generally a given that senior debt was sacrosanct.”

Subordinated bonds have largely borne the brunt of losses because they stop paying before senior securities in case of a default or debt restructuring. Should banks be unable to pay senior bondholders, they may find it more difficult and expensive to raise money. Anglo Irish Bank Corp. investors were forced to take 20 cents on the euro for subordinated debt this week.

Bank of China Adviser Tell US to Sell Gold

Please consider PBOC Researcher Calls on U.S. to Sell Gold, People’s Daily Says

The U.S. should cut its government spending and sell some gold reserves to balance its budget and fund its recovery, the People’s Daily overseas edition reported, citing Xia Bin, an adviser to the People’s Bank of China.

The U.S. has to resolve its “twin deficits” in the government budget and the current account, Xia was quoted as saying. Three ways that may help the U.S. achieve that target include reducing military expenses, selling part of its gold reserves and relaxing some export limits on technology, he said.

“The U.S. has more than 8,000 tons of gold reserves; why can’t it sell some of it since the country wants to raise funds for economic recovery but doesn’t want to add more burden to the fiscal deficit,” Xia told the newspaper.

Here's the punch line, "the PBOC researcher didn’t mention whether China would be willing to purchase any gold from the U.S." Ya think not?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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