Handbook to understand the words of the crisis

     Spreads, ratings, BTP-Bund, CDS. Every day we are deluged by reports that contain terms which often do not know the true underlying meaning.
     The tension in financial markets is getting more tense and the news they try to interpret the situation through the use of technical terms that are not always clear. We try to give an explanation in these columns.

     SPREAD

– It ‘a measure of default risk associated with a government bond and, consequently, the financial health of a country. Technically and ‘the gap, estimated from the market, including the performance of that title and the yield of a security correspondent for a state considered to be devoid of risk, such as Germany. The spread between the BTP and the ten-year German Bunds to 10 years has reached levels record-breaking. It ‘a record of the euro and indicates an increase in the cost for Italy finance markets. New peaks have reached even the spread of Portugal and Ireland, but also France and ‘at the highest level since March 2009.

     BTP-BUND

– are multi-year Italian government bonds (BTP, TREASURY BONDS) and Germany (Bund). With their emissions of the two states will finance markets. Their yield, which is fixed to a stand, and ‘a measure of financial health and credibility’ of the two countries. On the secondary market has reached the maximum ten-year BTP spread (qv) with the German Bund: This means not only that Italy becomes more ‘expensive to repay the debt (close to 120% of GDP), but also that forecasts of the country’s financial markets on health are negative.

     RATINGS

– The ratings agencies are companies’ private independent assess the risk associated with a title or who makes it, is a private or public, as a rule. Their judgments and ‘synthesized in the rating, a score (expressed in letters and digits) that represents the capacity’ of the issuer to meet its commitments and has a huge impact on investors’ decisions. The main rating agencies – Standard & Poor’s, Moody’s and Fitch – are the subject of strong criticism for their role in the crisis. The European Union and the FSB have to work a reform to limit their influence on the markets.

     Balanced budget

– the budget balance and ‘the objective of the maneuver, to be achieved in 2014. Equivalent to a report defict or GDP (qv) and its zero credibility ‘is a key variable in the attack speculation these days, that exploits the weakness of the Government and the Minister of Economy, Giulio Tremonti. The Governor of the Bank of Italy, Mario Draghi, who spoke Friday ‘to calm the markets, not surprisingly called”credible balanced budget in 2014 and the start of a downward trend in the debt or GDP.” The reduction of the deficit or GDP ratio, and ‘as the only way to reduce the stock of public debt.

     Short selling

Short selling

– Short selling (or ‘short selling’) are operations that take advantage of the opportunity ‘, as provided in the financial markets, to sell securities without having the actual possession and purchase only then to deliver them to the other party. They are usually tied to expectations – or speculation – on a price decline and may represent a ‘danger’ and a source of further instability ‘markets, if made by large investors such as hedge funds. For this Sunday 10 or 7 Consob imposed a reporting requirement for short sales of significant size. The obligation is triggered for operations to reach 0.2% of the capital of the company ‘and, subsequently, any variation greater than or equal to 0.1% of the capital.

     SUSPENSION OF SECURITIES

– To avoid excessive turbulence in the markets, to changing prices of a security over a certain threshold (which for the actions and ‘10%) negotiations of that title shall be automatically suspended. The suspension may’ also be of discretionary decision Consob. The suspension follows an auction of volatility ‘to set a new price.

     CDS

– Credit default swaps (CDS) are derivatives that act as insurance. Who buys a CDS, in fact, the seller agrees to pay a premium in exchange for the refund, only in case of default, the value of the obligation the subject of insolvency (usually a government bond). Are quoted in terms of spread (qv) and their value and ‘a measure of the reliability’ of the underlying securities (such as rating, qv). Born as derivatives to hedge the risk, but are developed as a tool for speculative bet on possible failure of a State or a private issuer. The European Parliament last week approved a report which called for more rules and more ‘transparency to the CDS market.

     DEFICIT or IP L

– The deficit or GDP and ‘a key measure of rigor in the public accounts of a State. And ‘the ratio between the balance between revenue (mainly taxation) and expenditure (government spending and interest paid on debt) of a state and its gross domestic product (GDP). The origin of the maneuver three years under discussion in Parliament there ‘the commitment at a European reset the deficit-to GDP in 2014. In 2011, however, the European Union provides for a report of Italy – 4.0% (lower than the Eurozone average, and that ‘of the -4.3%) but who live together’ with a previous debt equal to 120.3% of GDP and second only to that of Greece. The criteria set out in Maastricht to be admitted in the euro area provided for a deficit or GDP ratio below 3% and public debt below 60% of GDP.