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Big problem: politicians don't understand markets [ClearOnMoney]
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Big problem: politicians don't understand markets

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Commentary

Big problem: politicians don't understand markets

3 Nov 2011 by Jim Fickett.

Vacillation over the future of the EFSF rescue fund is destroying investor confidence:

Chinese vice-finance minister Zhu Guangyao has told reporters in Cannes, on the eve of a summit of world leaders, that it was “too soon” to discuss further bond purchases from Europe’s revamped rescue facility, the European financial stability facility.

Consider the backdrop. The three bonds already issued this year by the EFSF have performed miserably. The yield spread of the inaugural €5bn, 5-year EFSF bond issued in January, for example, has widened to 151 basis points over German Bunds, from 51 bps at issue. … Gary Jenkins of Evolution Securities put it very nicely: “The vehicle that’s supposed to borrow on behalf of countries that can’t borrow, can’t borrow.”

Then consider the outlook. The EFSF is a shape-shifting institution. There is no clear understanding of how its proposed partial guarantees against losses will work, or if the issuer’s triple-A ratings from all three main agencies would survive a serious and prolonged deterioration in eurozone conditions – which, heaven forbid, could put pressure on its triple-A rated guarantors.

[emphasis added]