Investor concerns about the ability of Greece and Portugal to lower their budget deficits is starting to hurt the debt of national utility companies and banks.
The cost to insure Greek sovereign debt against default surged to a record today, spurring a rise in credit-default swaps on Hellenic Telecommunications Organization SA and National Bank of Greece SA. Swaps on Portugal Telecom SA and Energias de Portugal SA jumped as the perceived risk of holding their government debt rose.
“If you fear a Greek crisis then you should not only avoid government bonds but corporates as well,” said Philip Gisdakis, head of credit strategy at UniCredit SpA in Munich. “And if you fear Greece you should also fear Portugal and Spain.”
Portugal needs deeper deficit cuts than included in its 2010 budget to tame rising debt and avoid a downgrade of its credit rating, Moody’s Investors Service said today. Greece is seeking to raise 53 billion euros ($74 billion) in funds this year to reduce a budget deficit of almost 13 percent of gross domestic product, the biggest shortfall in the European Union.
Credit-default swaps on Greece jumped 28 basis points to 402, according to CMA Datavision prices. Swaps on Portugal climbed 4 basis points to 154 and Spain rose 3 to 132. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments from Germany to Greece rose 0.25 basis points to a record 88.5.
Greek government bonds extended their declines, pushing the yield on the 10-year note 39 basis points higher to 7.14 percent.
The country’s new 8 billion euros of five-year bonds that were sold on Jan. 26 also tumbled. The spread on the notes, due August 2015, has widened to 409 basis points over mid-swaps, according to Markit Group Ltd. iBoxx prices on Bloomberg. They were issued at a spread of 350 basis points.
Greece sold almost 75 percent of the notes to international investors, including from the U.K. and France, the head of the nation’s debt agency said.
U.K. investors bought more than 29 percent of the 8 billion euros of notes sold via banks, according to Spyros Papanicolaou, director general of the Public Debt Management Agency in Athens. French investors purchased almost 8 percent and domestic buyers acquired more than 26 percent. The government said it received 25 billion euros of orders.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company or country fail to adhere to its debt agreements. An increase signals deterioration in perceptions of credit quality.
Contracts on Hellenic Telecommunications rose 10.5 basis points to 149.5 and National Bank of Greece increased 16 basis points to 372. Portugal Telecom climbed 13 to 111 and Energias de Portugal jumped 9 to 100, CMA prices show.