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Discussion in 'Forex' started by marketsurfer, Jun 20, 2008.

  1. SERIOUS, read:

    Spanish Treasury to Exclude Italian Government Bonds (Update1)

    By Ben Sills and Esteban Duarte

    June 20 (Bloomberg) -- Spain's Treasury will only accept the highest-rated government debt as collateral for short-term loans, a move that will exclude Italian government bonds.

    Beginning in July, Spain will only take AAA rated bonds registered with the Spanish clearing house Iberclear as collateral for overnight repurchase agreements, or repos, said Enrique Ezquerra, deputy director of public debt at the Spanish Treasury, in an interview yesterday. Standard & Poor's rates Italy's debt A+, while Moody's Investors Service has it at Aa2.

    The Spanish Treasury lends surplus cash to broker-dealers to boost income from financial holdings and receives collateral in return. The government expanded the range of securities it took as collateral last year to include foreign government bonds and AAA rated private debt as a record budget surplus increased the cash it had on hand.

    ``It helps out the front end of the Letras and Bonos curves in particular,'' said Ciaran O'Hagan, an analyst at Societe Generale in Paris in a research note, referring to Spanish treasury bills and bonds. ``That said, this kind of news -- technical as it is -- does not benefit the higher-yielding sovereigns.''

    Diverging Interests

    Spanish government bonds rose. The yield on the Spanish 10- year bond fell 3 basis points to 4.89 percent at 11:41 a.m. Madrid time. A basis point is one hundredth of a percentage point. Italian three-month treasury bills fell, with the yield rising 4 basis points to 3.51 percent.

    ``It seems to reflect exactly the divergent national interest within the euro zone we expect and should note going forward,'' said Meyrick Chapman, a fixed-income strategist at UBS AG in London.

    Italy's debt rating was lowered by Standard & Poor's and Fitch Ratings in October 2006 on concern a widening deficit will increase Europe's biggest debt.

    The Spanish government's cash holdings declined this year as debt maturities surged, making the Treasury more demanding about collateral, Ezquerra said.

    ``We have less excess cash to lend in the repo market,'' he said. ``In practice, this means we can't continue accepting Italy's bonds.''

    Spanish economic growth is weakening, and the government plans to spend the surplus, which reached 2.2 percent of gross domestic product last year, to try to protect the poorest Spaniards from the slowdown.

    The move ``is a partial step back,'' Ezquerra said. ``We will continue accepting AAA corporate bonds listed in the Spanish fixed-income market. This includes asset-backed securities and covered bonds.''

    Government bonds from Germany, France and the Netherlands, the other AAA rated members of Iberclear besides Spain, as well as its own public debt, will still be accepted as collateral by the Treasury.

    To contact the reporters on this story: Ben Sills in Madrid at; Esteban Duarte in Madrid at
  2. what do you pros think the implication on the euro will be?