Greece, Spain Sell Debt; Italy Rejects Rating Downgrade

Arthi Gupta
20 Sep, 2011
New York City

The European indexes pared losses on optimism that Greece may reach an agreement with lenders on the next bailout tranche. Italy rejected a rating downgrade from S&P. Spain sold

[R]2:00 PM Frankfurt – The European indexes pared losses on optimism that Greece may reach an agreement with lenders on the next bailout tranche. Italy rejected a rating downgrade from S&P. Spain sold €4.46 billion of 12- and 18-month T-bills and Greece issued €1.625 billion of 3-month T-bills at higher yields.[/R]

European stocks pared losses on optimism that Greece may reach an agreement with the troika on the next bailout package.

In early trading, European indexes slumped after ratings agency downgraded Italy''s sovereign credit rating by one notch to A from A+, five levels above junk, citing the nation''s weakening prospects for economic growth and a “fragile governing coalition.” The rating agency also said the outlook is ""negative.""

""In our opinion, the measures included in and the implementation timeline of Italy''s National Reform Plan will likely do little to boost Italy''s economic performance, particularly against the backdrop of tightening financial conditions and the government''s fiscal austerity program,"" said S&P.

The rating agency also questioned if the recently passed measures of €60 billion will actually materialize. The Italian bonds edged higher and the yield on the 10-year benchmark bond hovered near 5.63%.

Italian government reacted angrily to the downgrade. Prime Minister Silvio Berlusconi’s office in a statement noted that his government has a solid majority in Parliament and is taking steps to increase revenues and cut expenses.

Italy has covered more than 75% of its funding for the year and needs to raise €100 billion by the end of the year.

Greek Finance minister Evangelos Venizelos said the conference call with officials from the European Commission, the International Monetary Fund and the European Central Bank was “satisfying.” The talks focused on the steps the government has to take before the troika approves the sixth tranche of Greece’s bailout.

Greece said that the conference call would resume on Tuesday. The outcome of the talks would decide whether Greece gets an €8 billion or $11 billion tranche of the rescue loan slated for October.

Prime Minister George Papandreou is considering calling for a referendum on whether Greece should continue to tackle its debt crisis within the euro-zone or by exiting the single currency, according to sources cited by Kathimerini.

Papandreou hopes that the outcome of such a vote would constitute a fresh mandate for his Socialist government to continue with an austerity drive backed by Greece’s international lenders.

Greece sold €1.625 billion or $2.21 billion of 3-month T-bills today at a higher yield of 4.56% compared to 4.50% in a previous auction in August. The bid-cover ratio was 2.84 versus 2.95 in the August 16 auction.

The Spanish Treasury issued €4.4 billion of 12- and 18-month treasury bills in an auction today, versus a target of between €3.5 billion and €4.5 billion.

The Treasury sold €3.59 billion in 12 month debt at an average yield of 3.591%, up from 3.335% in a similar auction held last month. The bid to cover ratio was 2.8, versus 2.1.

The Spanish Treasury also sold €0.87 billion in 18 month debt at an average yield of 3.807%, versus 3.592% last time but here the bid to cover ratio declined to 2.7, from 3.2 before.

Separately, news agency reports suggested that the Bank of China suspended foreign exchange swaps with European banks.

Newspaper reports claimed that Siemens, the German engineering company withdrew around €0.5 billion of funds from a large French bank two weeks ago and put it in the European Central Bank on concerns about the future financial health of the unnamed French bank.

U.S. President Obama proposed to cut $3 trillion in spending and letting the tax cuts expire that were scheduled two years ago for the wealthy and eliminate loopholes for corporations. The plan will be submitted to a congressional supercommittee that was created to devise a deficit reduction plan of at least $1.2 trillion over 10 years.

In Paris, CAC-40 Index gained 39.38 to 1.3% to 2,979.38 and in Frankfurt DAX Index edged higher 119.46 or 2.2% to 5,535.37.

Italy Industrial Orders Rise

Italian industrial orders increased an unadjusted 6.5% from a year ago in July, data released by statistics office Istat showed.

German Sentiment Weakens

Germany''s economic sentiment deteriorated for the seventh month in a row in September, survey results from Mannheim-based ZEW Centre for European Economic Research showed on Tuesday. The index of economic sentiment fell by 5.7 points to -43.3 points.

Gainers & Losers

Aeroports de Paris SA gained 0.9% to €55.39 after the French airport operator reported a 1.4% rise in August passenger traffic compared with the same month last year.

Deutsche Lufthansa AG plunged 5.7% to €10.18 after the aviation company estimated fiscal year 2011 operating profit at the upper end of the three-digit million euro range.

Neste Oil Oyj dipped 0.8% to €7.20 after the Finnish oil refining and marketing company successfully started up Europe''s largest renewable diesel plant in Rotterdam in the Netherlands.

Tognum AG rose 0.3% to €26.07 after the German engine maker decided to reduce the size of its Executive Board to four members from five, as of October 1.

UBS AG declined 0.8% to Sfr9.99 after the financial services company’s directors are meeting in Singapore this week after the bank raised its loss estimate from the recent rogue trading to $2.3 billion.