Editor’s Note: The markets are on high tension mode right now. We have a 16.6% drop from last month. With the Greece bailout and possible Spain and Portugal, investors are seriously considering default as options these government might take to fix these distressed financial positions. In this WSJ article, it mentioned a Spanish bank was unable to renew $1 billion in short-term funding in the U.S. commercial debt market.
U.S. treasuries have rallied during this time as well, we are seeing record low interest rates (sub 5%) for 30 year fixed mortgages. This in my opinion is the start of the next leg down in this financial crisis. Much of this debt should of been defaulted or seriously restructured with large haircuts. We are seeing safe haven buying in the U.S. treasury market and that tells me people leaving other debt classes and crowding into the perceived safest asset class.
Wall Street Journal - That could be a sign that money-market funds and other big investors in this debt are reluctant to buy new paper as earlier deals mature. Investors are skeptical of many European banks because of their exposure to the debt of European governments hobbled by yawning budget deficits.
“There’s definitely some name differentiation happening,” said Neela Gollapudi, an interest rate strategist at Citigroup. “If you have specific concerns about a name, you may not buy it.
“It’s a question of which name is in the news,” Gollapudi continued. “If you have a Spanish name in the news, then other lenders will avoid it and other Spanish names because they are exposed to the same geography. This is the sentiment.”
The Wall Street Journal reported Wednesday that the big Spanish bank Banco Bilbao Vizcaya Argentaria SA has been unable to renew about $1 billion of short-term funding in the U.S. commercial paper market this month.
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