Posted on 11/11/2011 5:04:13 AM PST by blam
Oh Crap... AUSTRIA?!?
Joe Weisenthal
Nov. 11, 2011, 6:59 AM
And now we have to start talking about this.
It's the Austria-German 10-year spread
The spread is widening further today, even as Italy improves and markets are rising.
What's the deal with Austria? Well there have been persistent rumors about a downgrade, but furthermore, Austrian banks are famously exposed to Eastern Europe. And now you see stuff about how Slovenian yields are surging.
Too many fires to put out.
For a good background story on Austrian banks and exposure to Eastern Europe, see this NYT piece from last year.
(Excerpt) Read more at businessinsider.com ...
so what?
The global investors have decided that today will be another good day on Wall Street, and the band plays on as the iceberg looms ahead.
“Need” will expand to consume all available resources, if we let it.
Maybe some American bankers moved to Austria to get away from the feds chasing them down for what the housing bubble they created here...
Credit-Anstalt[ all over again
In English, please...sounds important, but “spread” and an unlabeled graph don’t mean much to some of us.
I think this is called "pre-positioning".
Yeah, Austrian has always been a tough language to understand or translate.
Cute.
So what’s “spread”, what’s the vertical axis on the chart, and what’s the implication of the rather brief lead post?
(Annoying when something important is indicated, and requests for explanation are met with insults.)
Spread measures the difference between two things, in this case interest on Austrian bonds vs German bonds. Spread is valuable in cases such as this because it answers the question, “compared to what?”. The particular interest rate on Austrian bonds is not as important as the fact that they are now running a lot higher than they normally do against “the standard” (Germany being the powerhouse of Europe).
Charts without labels are about as annoying as using acronyms without expanding them on first usage. And don’t get me started on charts that don’t start at “zero”, so they can show a tiny change like it’s the end of the world.
In this case, the y axis pretty much has to be basis points. A basis point is one hundredth of a percent.
So the chart shows that Austrian bonds traded about 0.25% higher than German bonds for awhile, but have recently risen to over 1% higher than German bonds.
That’s helpful.
So is the rise indicative of Austrian bonds being preferred over German bonds? explainable as Germany is in the thick of bailing out other countries, maybe making Austria look like a safer place to stash money for a while.
Or is it the reverse? explainable as Austria’s banks getting shaky, and Germany emerging as the remaining economic stronghold.
Agreed on the irritations. Acronyms? At the start of the Cain accusations, the complaints were emerging from what was described as the NRA - which, if not further expanded, is assumed something very different from the National Restaurant Association. Charts not starting from zero? Like “global warming” temperature charts, depicting huge changes which are negligible on a longer scale. Could it have hurt the author to start this chart from 0, which wasn’t that much farther down the axis?
Higher interest means that investors perceive higher risk. So Austria looks more risky (due to banks’ exposure to some of the problem nations) right now than they did recently.
I don’t know that Germany really has anything to do with it, besides being the most stable “local” alternative and therefore something to measure against. They could have used the US, or a mix of other countries, or maybe some really big, really stable corporations (not banks, of course) that regularly finance operations through borrowing, and we’d probably see the same thing. It’s just easier to use Germany.
It is the reverse. Yields (i.e. interest rates) rise when the bond issuer is seen as increasingly likely to default.
So noting that it’s a ratio, was it Austria’s rates that went up or Germany’s rates that went down?
That’s a good point. The article probably could have included information about what other European rates were doing vs Germany’s, so we could see how Austria compares.
But I suspect that if German rates were falling that much compared to all of Europe, we’d be reading about that instead of reading about Austria specifically.
I thought the Italians bought those banks?
yitbos
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