Marketing Communication
Euro Corporate Watch Grexit ≠ Crexit
Group Economics Macro & Financial Markets Research Hyung-Ja de Zeeuw +31 20 628 3551 Hyung-ja.de.zeeuw@nl.abnamro.com
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08 July 2015
Grexit seems more likely now than ever, however, market reaction almost reflects indifference Corporate fundamentals are healthier than in 2010 and credit spreads will be supported by the ECB ‘Greece’ has led to a minimum of supply but we think markets could reopen very soon and stay open during the holiday season Higher supply volumes and new issuance will be limiting spread performance in the near term
Grexit now more likely than ever
the OMT if QE doesn’t have the desired effect. The OMT can
After Greece’s convincing ‘No’-vote on Sunday and Tuesday’s
focus on ‘unlimited’ purchases of peripheral government bonds
Euro Summit of euro leaders, it seems more likely than not that
which makes it more suitable.
Greece will leave the euro at this point. The prospects of a
Second, other eurozone member states in the periphery aren’t
deal with creditors have dimmed considerably. Despite the
in a similar situation to Greece and aren’t ready to follow in its
Greek government’s claims that a ‘no’ vote would strengthen
footsteps. Contagion effects therefore seem to be limited.
their negotiation position at the table, other eurozone member
Third, exposures of the eurozone banking system to Greece
states did not take a softer stance Tuesday. With the previous
are modest and relatively transparent. The market knows
programme already expired, Greece now needs to except a
where the exposures are.
broader, tougher programme by the Sunday Euro Summit to keep its place in the eurozone.
Corporate fundamentals are healthier than in 2010 Since Mr Tsipras announced the referendum, the iBoxx non-
Market reaction reflects indifference to Grexit
financials has widened by 8bps (Tuesday eod). Intraday we’ve
The financial market reaction has been muted to the
seen wider levels but still, this isn’t anything near a panic
developments. There are no signs of a ‘Lehmann’ moment.
reaction. On the corporate level fundamentals are a lot
Monday’s trading session saw spreads of core corporates 3
healthier than in 2012. Balance sheets have been
bps wider in the long end, while for the periphery they were up
deleveraged, extensive cost cutting programmes have made
5 to 8 bps although flows were almost non-existent. Tuesday
operations lean and mean and revenues are recovering.
and Wednesday morning saw a further widening of up to 5bps
Indeed, the outlook for corporates is much brighter today then
but also on virtually no flow and substantial flows are
in 2010 with ultra-low funding levels supporting growth.
necessary to confirm the current levels. But it remains a very muted reaction to such important developments. There are
Corporate credit spreads supported by QE
several reasons for this.
The QE programme in the US has worked out positive for credit spreads, history has shown. Investors are pushed out of
First of all, the markets are counting on supportive measures
government bonds due to the low yields and move into credit.
from the ECB. If there would be signs of severe stress, the
Logically, this should also be the case during the ECB QE
ECB will be ready to intervene with force. Contrary to the
programme.
situation in 2010, the required instruments are now at the ECB’s disposal. In the near term, the ECB could decide to step
Moreover, last week’s inclusion of three Italian corporates to
up QE. Although the instrument is skewed toward core
the list of eligible assets signals the ECB programme can be
government bonds. Alternatively, the ECB could also activate
deployed directly in the corporate bond market. Although
Insights.abnamro.nl/en
Bloomberg: ABNM