Greece nears debt deal?

18th January 2012

Ian Copelin, Investment Director, my wealth, comments “The FTSE-100 is little changed this morning (up 6 points at 5,700 at 11am) following a cut in global growth forecast by the World Bank.

The World Bank now expects the global economy will grow by 2.5% this year (in June 2011 they estimated growth would be 3.6%).  For the euro area they now forecast a 0.3% contraction (having previously expected 1.8% expansion), while the US growth outlook was cut to 2.2% from their June estimate of 2.9%.

This has overshadowed the positive news that Greece is nearing a debt deal with private creditors.  Rumours suggest that a deal would provide creditors cash and securities with a market value of about 32 cents per euro of Greek government debt.

Elsewhere, Portugal will test debt markets today as they sell 11-month Portuguese bills (Portugal’s credit rating was cut to ‘junk’ status by Standard & Poor’s last Friday (13 January 2012)).  So far the credit downgrades have been a non-event:  yields on European government bonds have fallen and it hasn’t impaired the ability of France and Spain to raise money.  On Monday France sold €1.895 billion of one-year notes without a problem at a yield of 0.406%, versus 0.454% at an auction of similar-maturity securities on 9 January 2012, while yesterday Spain (whose rating was cut by two levels to A) sold 1 year debt at 2.049% compared with 4.05% on 13 December 2011.”