Credit Risk Indicators Fall as Greek Plan Fans Deal Optimism

  • Investment-grade corporate credit risk drops most in two years
  • Proposals may lead to Agreement this week, Dijsselbloem says
The euro FRA/OIS spread. A lower spread indicates banks are paying less to borrow in euros.
The euro FRA/OIS spread. A lower spread indicates banks are paying less to borrow in euros.
Source: Bloomberg

Indicators of credit risk tumbled across the euro area after new Greek financial proposals raised expectations the country may be able to secure an aid deal and avoid a default.

A gauge of investment-grade European corporate credit risk fell the most in two years, and Greek company bonds rallied. A measure of how much banks expect to pay to borrow in euros, known as the FRA/OIS spread, plunged as much as 21 percent.

Greece’s new proposals are a positive step that could pave the way to a deal this week, Dutch Finance Minister Jeroen Dijsselbloem said after presiding over talks in Brussels on Monday. Still, creditors will need to undertake a full appraisal before agreeing to a plan that could keep Greece in the euro and end months of deadlock.

“I am pleasantly surprised by the movement toward a deal today, but many things could still stop a deal being agreed.” said Chris Bowie, a London-based portfolio manager at Twentyfour Asset Management LLP, which oversees 4.5 billion pounds ($7.1 billion). “The gut feeling is we get a deal that takes Greece to the end of the year,” he said.

The Markit iTraxx Europe Index, which tracks credit-default swaps on investment-grade companies, fell eight basis points to 67 basis points as of 4:22 p.m. in London.

Further Talks

The Markit iTraxx Europe index tracks credit default swaps on 125 investment-grade European companies. A lower level indicates investors are paying less to purchase default protection on such companies.
The Markit iTraxx Europe index tracks credit default swaps on 125 investment-grade European companies. A lower level indicates investors are paying less to purchase default protection on such companies.
Source: Bloomberg

Greece’s creditors are yet to full assess the country’s proposals because the plan was only submitted early on Monday ahead of a meeting of euro-area finance ministers, Dijsselbloem said. Michael Noonan, the Irish finance minister, said he expected ministers to have to meet again on Thursday.

Bonds issued by Piraeus Bank and maturing in March 2017 are rallying.
Bonds issued by Piraeus Bank and maturing in March 2017 are rallying.
Source: Bloomberg

Piraeus Bank SA’s 500 million euros ($570 million) of 5 percent notes maturing in March 2017, rose as much as 10 percent to 62 cents on the euro, the biggest intraday jump since the bonds were sold in March 2014, according to data compiled by Bloomberg.

Prices for Hellenic Telecommunications Organization bonds maturing in July 2020 jumped.
Prices for Hellenic Telecommunications Organization bonds maturing in July 2020 jumped.
Source: Bloomberg

Hellenic Telecommunications Organization SA’s 3.5 percent bonds climbed as much as 6.4 percent to 87 cents, the biggest intraday gain since they were sold about a year ago. Public Power Corp.’s 500 million euros of 5.5 percent bonds due May 2019 surged as much as 15 percent. The Athens-based company is Greece’s biggest electricity provider.

The price of debt sold by Public Power and maturing in May 2019 jumped.
The price of debt sold by Public Power and maturing in May 2019 jumped.
Source: Bloomberg
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