Spain Getting Precautionary Credit Line Positive, Pimco Says

Spain receiving a precautionary credit line would be a positive for global financial markets, said Thomas Kressin, senior vice-president and head of European foreign exchange at Pacific Investment Management Company.

“The market reaction with regards to Spain would be much more favorable now with regards to a precautionary credit line,” Kressin told delegates at the Bloomberg Link FX12 Summit in London. “Spain would still have open-market access. That would be a market-friendly outcome.”

Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said today, signaling a reversal of Finance Minister Wolfgang Schaeuble’s public position.

The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned the country against seeking aid on top of its bank bailout as recently as last month.

The euro has jumped 4 percent against the dollar since European Central Bank President Mario Draghi pledged in July to “do whatever it takes” to safeguard the currency from the debt crisis. Spain must ask for a second bailout before the ECB can step in and buy its bonds with maturities of up to three years in the secondary market.

Spain’s Prime Minister Mariano Rajoy’s government has said it won’t request aid until the terms of a bailout are clearer.

ECB Target

The euro may weaken if the ECB gives the impression that it has a target for Spanish bond yields which is above the market level where it starts to intervene, according to Steven Englander, head of Group of 10 foreign-exchange strategy at Citigroup Inc. in New York.

“God help the euro if it turns out the target is higher than where the market is trading,” Englander said at the Bloomberg Summit. “The best thing the ECB could do at that point is to buy a lot and say we’re ready to buy more. If the market feels they are not committed, we will be back to where we were in April.”

Spanish Bonds

Spanish two-year note yields dropped seven basis points, or 0.07 percentage point, to 3.13 percent at 4:36 p.m. London time after dropping to 2.71 percent on Sept. 7, the lowest since April 4. The euro strengthened 0.7 percent to $1.3038 after advancing to $1.3172 on Sept. 17, the highest since May 4.

Standard Life Investments maintains a bearish view on the euro amid concern the euro-area crisis will intensify, according to Frances Hudson, a global thematic strategist at the company.

“We have severe reservations about the way it plays out in Europe and are slightly more optimistic about the U.S. in the ugly dog competition,” Edinburgh-based Hudson said. Standard Life has run a short position in the euro for the past three years, or a bet the currency will decline.

To contact the reporter on this story: Neal Armstrong in London at

To contact the editor responsible for this story: Paul Dobson at

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