Irish Banks Under More Pressure; Spain in the Spotlight

 

The mounting concerns on Irish senior debt continues unabated this morning following the article in the Irish Times that the EU and IMF were looking at how senior bondholders can be made to share some of the burden in a bailout package that might be announced a early as this weekend.

The fallout of the story is not just impacting on the Irish banking sector, where senior bonds are under heavy pressure again this morning.

AIB 5.625% 2014 is quoted at 75-78, down 1.5 points on the day, with the same issue trading 1000bps over swaps for the first time, some 70bps wider on the day and 140 wider on what has been a particularly tricky week.

Highly illiquid CDS markets are also seeing the upfront fee required to buy protection on AIB up by a couple of percentage points to 22%. The contagion effect is spreading across the European banking sector, where the Senior Financial index is 7bps wider at 168, with offers lifted in the street on a regular basis.

This takes the index to it's widest level since the end of June, and takes the spread to Main to the brink of the 60bps level having traded at 20 around a month ago.

The Spanish giants continue to underperform on contagion fears. 5yr CDS on BBVA is a further 5bps wider to 255 this morning, whilst Santander is 4bps wider at 245. Both names are around 50bps wider on the week. This is not helped by some large selling of Spanish government 3 and 4yr paper as well as some big selling of the euro in FX markets by Spanish banks as markets become ever more jittery on the sovereign.