Chart Of The Day: The EFSF Is Already Trading As AA+, Or Why The French AAA Rating No - News and Current Events | futures io social day trading
futures io futures trading

Chart Of The Day: The EFSF Is Already Trading As AA+, Or Why The French AAA Rating No
Updated: Views / Replies:231 / 0
Created: by Quick Summary Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Thread Tools Search this Thread

Chart Of The Day: The EFSF Is Already Trading As AA+, Or Why The French AAA Rating No

  #1 (permalink)
Quick Summary
Chart Of The Day: The EFSF Is Already Trading As AA+, Or Why The French AAA Rating No

Following the S&P "technical glitch" on Thursday which sent out a bizarre notice to a few subscribers notifying that a rating action on France is imminent, FrAAAnce is up in arms and demanding S&P blood. The reason: as everyone knows by now, the sanctity of the Eurozone is now contingent on those three A letters more than any other variable, because without said rating, France becomes ineligible for EFSF funding purposes (at any rating less than AAA), the EFSF's sole 'pristine' backer becomes Germany, and sends the EFSF yield curve into a tailspin, as it glaringly painfully obvious that Germany alone can't fund the trillions needed to preserve the Eurozone and purchase rolling Italian and other PIIGS debt. Yet one look at the yield curve of the EFSF as it already stand confirms that the market is not waiting for S&P, Moody's or any other rating agency, as it is now just a matter of time: after all recall that S&P itself said that it "would likely downgrade the credit ratings of France,
Spain, Italy, Ireland and Portugal if the euro zone slips into another
recession." Well as of yesterday, the EU itself warned the Eurozone may slump into "a deep and prolonged recession."The result: as of the past few days the EFSF no longer trades with an AAA implied rating. In face as can be seen on the chart below analyzing regression curves for various rating strata, the EFSF is now AA+ at best. Simply said, this means that the bond market has once again voted, and completely oblivious of the noise that is the puppet changes at the top in Italy and Greece, is already preparing for the next contingency casualty, which after France, is just one... at least in Europe.

Please register on to view futures trading content such as post attachment(s), image(s), and screenshot(s).

And here is the salient section from the S&P October 20 Eurozone "Stress Test" - the bolded text is all that matters:

This new stress test updates our scenario analysis published on March 22, 2011. It's split into two parts:

In the first part, we review our base-case projections (very low growth for the European Economic and Monetary Union [eurozone]) and the potential impact on our rated universe of a double-dip recession (Scenario 1) and of a double-dip recession plus an interest rate shock (Scenario 2), with stress intensity ranging from modest to substantial depending on the jurisdictions. With the exception of Greece--where we assume a 60% haircut on sovereign debt, which is consistent with our recovery rating of '4' on the sovereign's debt--we do not assume any other European sovereign debt restructuring to occur under both scenarios.

The key projections from our stress scenarios are that:
  • The impact would be hardest on sovereigns and sectors most closely aligned with the credit fortunes of governments, such as government-related entities, local and regional governments, and banks.
  • Sovereign ratings on France, Spain, Italy, Ireland, and Portugal likely would be lowered by one or two notches under both scenarios.
  • Under Scenario 1, the Tier 1 ratio of 20 banks in our sample of 47 could fall below 6%. (Under Scenario 2, the number of banks affected rises to 21.) We assume that this would require recapitalization by their governments to raise the ratio to 7% for a total cost that we estimate to be about €80 billion (€90 billion). We infer that the overall eurozone-wide recapitalization cost could amount to about €115 billion (€130 billion).
  • Speculative-grade corporate defaults would likely increase to between 9% and 13% under the scenarios, and industrial sectors most exposed to rating downgrades would likely include steel and aluminum, downstream oil and gas, building materials, and forest products.
  • Covered bond programs in Italy, Portugal, and Spain could be lowered by several notches under our criteria, reflecting the potential downgrades of issuing banks.
  • The deterioration of collateral securing structured finance transactions in Italy, Portugal, and Spain could contribute to a downgrade rate of at least 25%-30%, with junior tranches most affected.
  • If all counterparties to structured finance transactions were to be downgraded by one notch and did not replace themselves, we could downgrade the senior notes in approximately 10%-15% of securitizations.
  • Rated insurers in Italy, Spain, and Portugal, or with significant operations in or exposures to these countries, or large U.S. equity portfolios in their life operations, potentially could see rating actions limited to between one and two notches on average.
  • Increased yields under Scenario 2 would actually come as a relief to life insurers with guaranteed yield products.
In the second part of the report, we also assess the funding capacity of the EU and the IMF to support our base-case projections as well as stressed borrowing requirements from Greece, Ireland, Portugal, Italy, and Spain in order to keep borrowing costs at levels that don't exacerbate solvency issues.

Our key projections from these tests are that:
  • The current arrangements likely would be sufficient under our base-case projections if the EU and International Monetary Fund (IMF) were to support 100% of the borrowing requirements for Greece, Portugal, and Ireland, and up to 10% of the borrowing requirements for Spain and Italy.
  • These arrangements likely would be insufficient under a double-dip recession scenario to support 100% of the stressed borrowing requirements for Greece, Portugal, and Ireland, and up to 30% of those for Spain and Italy.
  • Under such highly stressed conditions, we calculate that there would be a shortfall of €287 billion between the joint lending capacity of the EU support mechanism and the IMF, representing about 2.7% of the aggregate 2010 GDP for eurozone member states.
Tabular summary:

Please register on to view futures trading content such as post attachment(s), image(s), and screenshot(s).

More on ZeroHedge...

Reply to share your thoughts on this current event.


futures io > > > > Chart Of The Day: The EFSF Is Already Trading As AA+, Or Why The French AAA Rating No

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

Wyckoff Hunting for Great Risk/Reward Ratio w/Gary Fullett

Elite only

Digging into the Details of iSystems w/Stage 5 & iSystems

Jun 5

Similar Threads
Thread Thread Starter Forum Replies Last Post
France's AAA Rating Is A Fragile Linchpin In Euro Zone Crisis Plan kbit News and Current Events 0 October 6th, 2011 01:19 PM
U.S. loses AAA credit rating, downgraded from S&P kbit News and Current Events 39 September 21st, 2011 11:43 PM
Moody's Puts U.S. AAA Credit Rating On Review kbit News and Current Events 0 July 13th, 2011 07:42 PM
S&P Affirms US AAA Rating, Cuts Outlook to Negative Quick Summary News and Current Events 0 April 18th, 2011 09:30 AM
S&P Cuts Japan Debt Rating to AA Minus Quick Summary News and Current Events 0 January 27th, 2011 04:10 AM

All times are GMT -4. The time now is 10:07 AM.

Copyright © 2018 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432,
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2018-05-26 in 0.06 seconds with 19 queries on phoenix via your IP