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The Continuing Thaw in Euroland

Posted by nexvucapital on November 20, 2012

Signs of the thaw are everywhere…this from Euroland…

Full Article:

European bank debt, once an investment pariah, is suddenly popular. In recent weeks, money managers have been readily buying the new bonds of the region’s financial institutions, deals that just months ago would have seemed unpalatable. The Bank of Ireland, which received a bailout in 2010, sold $1.3 billion of bonds on Tuesday and found strong demand. It was the largest offering by an Irish bank without a government guarantee in almost three years. On Thursday, the British bank Barclay’s sold $3 billion of 10-year bonds at 7.6 percent. The Portuguese lender Banco Espírito Santo recently issued $958 million worth of debt at 5.9 percent.

OK, What’s Up?

Simple answer, this is a booked win on the pending creation of a centralized European FDIC. The risk in these bonds is default on deposits and that is why they carry such high interest rates. So what if the Euro FDIC is in place and deposits are insured. The market value of these bonds will rise as a major risk component is removed and hence the booking of profits on the trade.

Why the hell else would anyone buy Irish and Portuguese Bank Debt 😉

This is why I love the market…


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