Senior Debt Tightening as Bondholders Escape

LONDON, Nov 29 (IFR) - The bailout statement released last night did little to clarify the situation on the treatment of senior/subordinated bondholders.

What we did get was some assurance from Olli Rehn that senior bondholders would not be subjected to any haircuts/burden sharing, after being questioned by the press at the press conference last night.

This should give the market a degree of stability following a dismal performance in the sector last week. Had there been a haircut imposed on senior debt, there would have been a contagious effect in funding markets that may have been more difficult to reverse than just recapitalising the Irish banking sector.

To this effect there has been some positive price action this morning on the open. This has seen senior debt on Irish banks snap higher, with AIB ALBK.I 5.625 pct 2014 some 7.5 points higher to 79-83, equating to a move tighter to swaps of over 200bps, back to levels seen last Monday having traded down at 70 on Friday morning.

Bank of Ireland BKIR.I 4.625 pct 2013 was also seen up at 88-92 having traded at 76-79 on Friday (some 250bps tighter to swaps) whilst the cost of upfront protection on BKIR has fallen to 8-13 pct having been up at 17-20 pct.

In terms of the broader market, the Senior Financial index is the best performer on the day (not surprisingly), tightening by around around 8bps to 157, whilst sovereign markets are displaying some cautious tightening, with Ireland around 10bps tighter in 5yr CDS at 590 and 5yr cash 5bps tighter to core Germany.

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