Eurobonds: only as good as the weakest link?
September 7, 2011 Leave a Comment
This hasn’t yet been confirmed, but in the latest letter from commentator John Mauldin, he includes this tantalising paragraph:
From Dennis Gartman: “Finally… and we shall cover this at some greater length tomorrow… S&P has said over the weekend through one of its senior spokespeople in Europe that if a EUR-bond is underwritten it shall have the rating of the lowest rated constituent country involved and thus will have coupon far, far above that of Germany, or France or Belgium et al. A EUR-bond would thus have the credit rating of Greece!”
So it comes from an unknown senior S&P employee to Dennis Gartman to John Maudlin and now to you, so its provenance is somewhat murky, but anyway….
It does seem hard to believe that S&P would rate eurobonds at the lowest level of any country involved in the scheme – are they being deliberately obtuse? How does a bond backed by Greece have the same rating as a bond backed by Greece, Germany, France, Spain etc etc etc? Does the additional backing provided by the other countries make no difference as to the credit-worthiness of the bond? Seems impossible. Even S&P, who have shown themselves to be well off the pace in recent years, would have more sense than this quote suggests.
