Focus Shifts to Record Italian, Spanish Bond Yields

Bikram Pandey
02 Aug, 2011
New York City

The focus in the European trading shifted to the euro-zone sovereign debt stress as the yields on Italian and Spanish bonds rose to a record high and inched in the danger zone. Belgium completed the sale of Treasury bonds but yields rose. The euro declined.

[R]3:00 PM Frankfurt – The focus in the European trading shifted to the euro-zone sovereign debt stress as the yields on Italian and Spanish bonds rose to a record high and inched in the danger zone. Belgium completed the sale of Treasury bonds but yields rose. The euro declined and Italy’s finance committee is scheduled to meet to discuss rising yields.[/R]

The European markets declined sharply in the morning after the peripheral euro-zone debt stress resurfaced. The euro declined to the lowest against the euro and the yields on the Spanish and Italian bonds soared to the record since the creation of the euro.

Investors sought the safety of the German bonds and the yields on the German bunds declined 4 basis points to 2.41% and UK gilts declined to 2.77%.

In Paris CAC-40 Index gained 26.93 to 0.8% to 3,560.46 and in Frankfurt DAX Index edged lower 62.92 or 0.9% to 6,891.06. Earlier after the opening the index dropped sharply and the DAX index fell near 2%.

The benchmark indexes in Milan dropped 1.5%, in Stockholm fell 1.7% and in Switzerland 3.2%.

The bond market was in the focus as the investors demanded higher yields from the peripheral euro-zone demanded higher yields.

Spanish 10-year bond yields soared 18 points to 6.38% and Italian bonds gained 21 points to a record high to 6.21%.

Belgium completed the sale of 2.75 billion euros of treasury bills, just below the maximum of 2.8 billion euros. The bid-to-cover ratio increased to 2.03 from 1.2 times in the previous auction on July 12.

Euro-zone producer prices increased 5.9% in June after rising 6.2% in May according to the data released by the region’s statistics office.

Industrial producer price index was unchanged in June from May in the euro area and in the wider region of EU27 nations. In May prices fell 0.2% from a month ago in the euro area and 0.3% wider region of EU27 nations.

Gainers & Losers

Banks declined on the worries after the yields on Italian and Spanish bonds rose to the level that may shut them out of the private markets.

The European rescue fund is not large enough to create a secondary market for the Italian and Spanish bonds. Italy and Spain together need to raise at least 400 billion euros for the rest of the year.

BNP Paribas declined 1.1% and the bank reported higher second quarter profit on strong results in the corporate lending.

Barclays traded higher but declined from the peak of the day after it reported higher tian estimated earnings.

In Milan trading, Intesa Saopaolo declined 3% and UniCredit dropped 3.2%.