Bailout boost helps lower spreads (Reuters) (14-03-2011)

LONDON, March 14 (Reuters) –The decision of last weekend’s summit to increase the lending capacity of the European Financial Stability Facility and allow it to buy bonds of distressed euro zone countries on the primary market, helped spreads pull back.

The package, included better bailout terms for Greece, and was unexpected by the markets, as any decisions on tackling the debt crisis were expected to be deferred to later in the month when EU leaders meet. Analysts had positive comments as to the improvement for Greek government bonds.

Greek/German 10-year yield spreads were 29 basis points lower on the day at 940 bps. Spanish, Italian and Portuguese spreads were 10-13 bps lower.

Irish bonds underperformed as the country, bailed out last year by the EFSF, got no improved terms for its aid deal. Better conditions may be agreed later this month, but subject to discussion on a common corporate tax, which Ireland opposes.

Jean-Claude Juncker, who chairs meetings of euro zone finance ministers, said leaders would agree a deal for Ireland that goes in the same direction as the cut granted to Greece, news agency Market News International reported on Monday.

The Ireland/Germany yield gap was 642 basis points, 4 narrower on the day, while five-year Irish credit default swaps rose 7 bps to 608 bps. By contrast, Greek CDS fell 65 bps to 980 bps, according to data from Markit.

Source: Reuters