PrefBlog

Europe’s on credit watch:

Moody’s Investors Service said it can’t rule out further credit downgrades for euro-region nations because the agreement on a permanent bailout fund, the European Stability Mechanism, doesn’t go far enough.

European Union leaders met March 25 and set out new rules on bailout loans. Their failure so far to provide a permanent system whereby stronger nations support the finances of their weaker counterparts leaves bondholders at risk, Moody’s said.

“The absence of a fiscal-transfer mechanism and the conditions under which assistance will prospectively be made available leave downside risk to private creditors,” the rating agency said in an e-mailed report today. “Consequently, further rating downgrades cannot be ruled out.”

… so the ECB is suspending credit quality requirements:

The European Central Bank said it will accept all debt instruments backed by the Irish government as collateral against ECB loans as the country attempts to shore up its banking industry.

The Frankfurt-based ECB said Ireland’s commitment to recapitalize its banks and comply with a consolidation program prescribed by the European Union and International Monetary Fund must be assessed “positively.” The suspension of the minimum credit-rating threshold is based on “this positive assessment of the program,” a capital increase for Ireland’s four banks and the decision to “deleverage and downsize the banking sector,” the ECB said.
…
It is not the first time the ECB has loosened its collateral rules to help a euro-area member state in distress. In May last year, the ECB announced it would accept all Greek government debt as collateral when lending to banks, suspending minimum credit-rating thresholds to support a 110 billion-euro bailout of the debt-strapped nation. Ireland was the second of the now 17 euro-area members to receive a bailout last year.

The ECB “deems debt instruments issued or guaranteed by the Irish government to fulfill the credit standards required for collateral in Eurosystem credit operations,” the bank said. “The relevant risk control measures will be reviewed on a continuous basis.”

It was a good day to end the month in the Canadian preferred share market, with PerpetualDiscounts gaining 10bp, FixedResets exactly flat and DeemedRetractibles winning 13bp. Volatility was muted, with only two entries on the Performance Highlights table. Volume was average.

This entry was posted on Thursday, March 31st, 2011 at 11:09 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.