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The interest rate spreads between Irish
10-year bonds and
German benchmark bunds rose above 6% today.
The yield - -
or interest rate which on a fixed rate bond, rises when the
price of the bond falls; e.g. if a €100 bond with a fixed coupon rate of 3%,
fell on the market to €50, the yield would rise to 6% - - on 10-year Irish bonds
rose above 6.1% at one point this morning compared with 5.68% on
Monday - - almost 385
basis points (3.85%) above the German yield. It later fell
slightly.
The heightened bond market concerns
today were triggered by
an article in The Wall Street Journal which says Europe's recent "stress
tests" of the strength of 91 major EU banks understated some lenders'
holdings of potentially risky government debt, Journal analysis shows.
Some banks excluded certain
sovereign bonds from their tallies, and many reduced the sums to account for
"short" positions they were holding -- facts that neither regulators nor
most banks disclosed when the test results were published in late July.
The Journal says Barclays PLC
excluded a large swath of sovereign bonds that it was holding for trading
purposes. The rationale, according to Barclays officials, was that the bonds
were directly related to transactions the big U.K. bank was performing for
corporate or government clients, and that the holdings vary widely from day to
day. Barclays didn't disclose that it wasn't listing its full holdings.
Excluding those bonds reduced
Barclays' portfolio of Italian sovereign debt - - which the bank said was £787m
($1.22bn) - - by about £4.7bn, Barclays officials said. The bank's holdings of
Spanish government bonds, listed at £4.4bn, shrank by about £1.6bn.
Barclays said it excluded the
holdings based on guidance from CEBS, which was communicated to the bank via the
U.K.'s Financial Services Authority. "We've done exactly what CEBS told us,"
a Barclays spokesman said. An FSA spokeswoman declined to comment.
The Barclays officials said they
believe other big European banks also excluded significant slices of their
trading portfolios from the stress-test disclosures.
The National Treasury Management Agency
said Tuesday it is going ahead with a
sale of more short-term Irish debt on Thursday.
Bloomberg
reports the Greek-German 10-year yield spread reached 942
basis points and was at 940 basis points at noon in London,
from 914 basis points yesterday.
The Greek-German
spread hit a record 973 basis points on May 7th, the day
before the European Union and International Monetary Fund
agreed a support mechanism for member countries.
German banks including Deutsche Bank
AG need to raise about €105bn to reach a 10% Tier 1 capital ratio, a key measure
of financial strength, Dirk Jaeger, who is responsible for regulatory topics at
the Association of German Banks, said yesterday.
The association warns against
overshooting the target when introducing new capital adequacy and liquidity
management rules. "It is clear that more capital is needed. But it's also
clear that raising this new capital will be onerous – that's why a sense of
proportion is important," said Hans-Joachim Massenberg, the association's
Deputy General Manager. "Going too far will jeopardise economic recovery and
the positive labour market trends." The Basel Committee on Banking
Supervision is to unveil today a package of new capital requirements (Basel
III), which will be adopted at the G-20 summit in Seoul in November.
