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CREDIT COMMENTARY
Jan 14, 2013
Eurozone concerns weigh on market
Spreads opened wider on Monday as lower than expected eurozone industrial production figures and concerns over the proposed banking union punctured optimism that the worst is behind us.
Industrial production fell 0.3% in November, confounding expectations of a rise. The decline was led by Spain and Italy, where output dropped by 1% and 2.5%, respectively.
Peripheral spreads moved wider amid reports that the EU is back-tracking on proposals to use the European Stability Mechanism to directly recapitalise banks.
A discussion paper that was leaked to the press seems to suggest that the country in question would have to sue its own funds to recapitalise banks before the ESM can be tapped. Even if the ESM is used, sovereigns will still have to guarantee that the fund gets its money back.
If put into practice, the leaked proposals will do little to break the link between banks and sovereigns that has caused so much damage in recent years. Spain and Italy have yet to request a bailout, but they were among the worst performers today. Both sovereigns widened about 13bps to trade at 257bps and 236bps, respectively.
Corporates were also wider with Dutch postal firm PostNL one of the main laggards. The company has a 33% share in Dutch delivery company TNT Express, which had its takeover by UPS blocked by the European Commission today. The EC believes that the deal would leave the sector with too few competitors. PostNL's spreads widened 46bps to 235bps.
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