"Well, a weekend during which Greece seems to have been finally able to pass muster on its bond deal, while Mario Draghi has given the official “all clear” on the debt crisis, seems to be as good a moment as any to have a look at the country which many investors consider likely to be the next to enter the restructuring proces.
Speaking after last week’s meeting of the ECB’s governing council Mr Draghi said the recent three-year long-term refinancing operation (LTROs) had been an “unquestionable success” and had “removed tail risk from the environment.” For the uninitiated “tail risk” is defined by Wikipedia as ”the risk of an asset or portfolio of assets moving more than 3 standard deviations from its current price in a probability density function. Such risk is often under-estimated using normal statistical methods for calculating the probability of changes in the price of financial assets”.
Now I’m not exactly sure whether a two percentage point shift in bond yields over a 12% starting point – or a movement of about 16% in two weeks – counts as tail risk in the technical sense, but it sure looks like it should, and this is basically what just happened to Portugal.
Speaking after last week’s meeting of the ECB’s governing council Mr Draghi said the recent three-year long-term refinancing operation (LTROs) had been an “unquestionable success” and had “removed tail risk from the environment.” For the uninitiated “tail risk” is defined by Wikipedia as ”the risk of an asset or portfolio of assets moving more than 3 standard deviations from its current price in a probability density function. Such risk is often under-estimated using normal statistical methods for calculating the probability of changes in the price of financial assets”.
Now I’m not exactly sure whether a two percentage point shift in bond yields over a 12% starting point – or a movement of about 16% in two weeks – counts as tail risk in the technical sense, but it sure looks like it should, and this is basically what just happened to Portugal.
Portuguese bond yields are rising as investors are busy putting cheap money from the European Central Bank to work elsewhere. The increase in 10-year borrowing costs by almost two percentage points in the past two weeks is stoking concern among investors that the nation will struggle to resume bond sales in 2013. Portugal has been unable to sell debt due in more than a year since it was given a 78 billion-euro ($102.8 billion) bailout in May 2011, following Greece and Ireland……Portugal’s 10-year yield was at 13.83 percent at 12:07 p.m. in London, up from 7.48 percent a year ago. The extra yield investors demand to own the nation’s bonds rather than Germany’s widened 1.1 percentage points to 12.04 percentage points since the ECB announced its program of three-year loans to banks on Dec. 8. Italy’s spread shrank 124 basis points to 3.2 percentage point, and Spain’s narrowed 53 basis points to 3.26..."at http://www.economonitor.com/edwardhugh/2012/03/11/portugal-gradually-shuffles-its-way-up-towards-the-front-of-the-debt-queue/
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