Goldman Sachs Group Inc. (GS:US), the fifth- biggest U.S. bank by assets, positioned itself for a decline in the value of Spanish government bonds and a rally in Italian sovereign debt during the first quarter.
The firm’s “market exposure” to Spanish government bonds shifted to a negative $446 million in March from a positive $151 million in December, the New York-based firm disclosed in a quarterly regulatory filing. For Italian sovereign debt, the exposure surged to $2.51 billion in March from $210 million in December, according to the filing.
Goldman Sachs discloses the firm’s credit and market stance for Italy, Greece, Ireland, Portugal and Spain each quarter because those five countries are viewed by investors as Europe’s riskiest. Concern about the continent’s financial crisis has reignited since the end of the quarter as Greek voters balked at austerity measures and Spain prepared a fourth attempt to overhaul its financial system.
“Credit exposure” shows the risk from a default or credit deterioration of the counterparty or borrower, and “market exposure” is the potential loss tied to price changes.
Total credit exposure to the five nations fell 14 percent in the first quarter to $2.52 billion from $2.93 billion, according to the filing. Total market exposure more than quadrupled to $2.68 billion from $585 million.
In Spain, Goldman Sachs’s market exposure to credit derivatives on sovereign debt was negative $515 million at the end of March, compared with negative $550 million at the end of December. The total market exposure on Spanish sovereign debt was negative $961 million at the end of March, more than double the negative $399 million at the end of December.
By contrast, Goldman Sachs’s market exposure to non- sovereign Spanish securities climbed to $911 million from negative $45 million at the end of December. The firm had $1.46 billion of non-sovereign Spanish bonds (GS:US) and $234 million of equities, offset by a negative $782 million from credit derivatives, according to the filing.
Derivatives include credit-default swaps, which act like insurance to reimburse a bondholder when a borrower fails to meet its obligations.
Goldman Sachs’s credit exposure to Spanish government debt fell to $68 million in March from $88 million in December, while the firm’s position in non-sovereign Spanish debt climbed to $571 million from $423 million, according to the filing.
The firm (GS:US) had “market exposure” of $2.51 billion on Italian government bonds and $170 million on credit derivatives at the end of March.
Market exposure to non-sovereign Italian securities was negative $285 million at the end of March, as a negative $907 million exposure from credit derivatives more than offset $367 million of non-sovereign Italian bonds and $255 million in Italian equities.
Total credit exposure to Italy fell to $1.17 billion in March from $1.23 billion at the end of December. While sovereign credit exposure to Italy rose to $302 million from $259 million, non-sovereign credit exposure slid to $867 million from $966 million.
The yield on Spanish 10-year bonds, which move in the opposite direction of prices, was little changed at 5.33 percent at the end of March compared with 5.34 percent at the end of December. It has since surged to 5.97 percent. Italy’s 10-year bond, after dropping to a yield of 5.10 percent from 7.03 percent in the quarter, has since risen to 5.50 percent.
Yields on two-year Spanish debt have climbed to 3.51 percent from 2.47 percent at the end of March, while two-year Italian bonds are yielding 2.95 percent compared with 2.86 percent.
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