Despite disappointing auction results in France, the downgrade hangovers
(sell the rumor, buy the news?), and increasingly likely Greek PSI talk
epic-fail, most European sovereigns are rallying modestly on the day.
Given the expected shift in the AAA benchmark used for margining (dropping higher yielding France 'AAA's as they are downgraded will
lower AAA benchmark significantly and implicitly widen the yield
differential for other sovereigns), it is perhaps no surprise that TPTB
are active in BTPs (Italian bonds) but it appears that Portugal
(admittedly illiquid) has been left to its own devices. Portuguese 10Y bond spreads to bunds just broke 1250bps, +180bps on the day and at record wides. Given
the subordination concerns as ESM is accelerated, it is perhaps no
surprise that the ECB's SMP has seemingly decided that Portugal has
crossed the Rubicon into Greece territory.
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