German Court Suspends Parliament Committee; Italian Yields Rise

Devan Biswas
28 Oct, 2011
New York City

European markets traded lower a day after leaders agreed to finalize the terms of Greek bonds restructuring. Bond market sceptic drove the yield for Spanish and Italian bonds higher. Italy completed the sale of

[R]4:15 PM Frankfurt – European markets traded lower a day after leaders agreed to finalize the terms of Greek bonds restructuring. Bond market sceptic drove the yield for Spanish and Italian bonds higher. Italy completed the sale of €8 billion long term bonds near record high yield.[/R]

European indexes declined a fraction after a surge of more than 5% in Thursday’s trading. All eyes turned to bond markets as yields on Italian and Spanish bonds continue to rise.

Italian Treasury sold less than €8 billion of bonds of 3-, 7-year and 10-year maturities that drew tepid response and yield surged near the highs last seen a week ago.

Italian Prime Minister Silvio Berlusconi yesterday told reporters that the nation will lose its credibility “if we do not respect our commitments” and went on to add “we won’t be credible anymore.”

Italy is struggling with the second largest debt to GDP in the euro zone after Greece and lawmakers failed pass austerity measures that were demanded by the EU leaders.

The growing list of skeptics cautioned that the quick embrace of the plan by the market may lead to disappointments later. There are a number of questions on how Greek debt restructuring will work and if enough people do not sign up for the voluntary exchange the pact could easily unravel.

Investors are still not convinced how the European Union will leverage its rescue fund from the current €440 billion to €1 trillion. French President Sarkozy is expected urge China and Japan to participate in the fund.

In Paris, the CAC-40 Index fell 17.30 or 0.5% to 3,351.32 and in Frankfurt the DAX Index edged lower 8.2 to 6,329.65.

The indexes in Stockholm fell 0.6%, in Madrid dropped 0.8%, in Milan fell 1.7% and in Zurich gained 0.2%. The index in Athens fell 1.1% and in UK dropped 0.3%.

Italy Sells €7.94 Billion Bonds, Yields Rise

Italy completed the sale of €7.94 billion, lower than expected. The yield on 10-year bond increased 9 basis points to 5.97%, near 6.1% high reached last week.

Italian Treasury sold €3.08 billion 3-year bonds due in 2014 and yield rose to 4.93% from 4.68% yield in the September auction. Italy also sold €2.98 billion of 2022 bonds to yield 6.06% and €871 million of 2019 bonds to yield 5.81%.

The spread to German bunds increased to 376 basis points from 368 basis points before the auction.

The yield on the equivalent Spanish bonds increased 9 basis points to 5.44% and the yield on 10-year German bonds were little unchanged at 2.21%

German Court Dissolves Parliament Committee

Germany’s Constitutional Court temporarily suspended the use of special committee to make emergency decisions related to rescue fund and central bank’s authority to intervene in the bond market.

Two opposition lawmakers filed a legal challenge and said that special committee infringes on the rights of lawmakers to participate in the decision process.

The final decision is expected by late December according to a court spokeswoman.

Gainers & Losers

Deutsche Bank AG extended gains for the second day by 1.1% to €33.07, BNP Paribas SA rose 3.5% to €36.37 and Societe Generale SA surged 1.4% to €23.32.

Intesa Sao Paolo SpA declined 2 cents to €1.38 and UniCredit SpA increased 3.6% to 90 cents.

HSBC Holdings plc increased 2.5% to 568.30 pence and Barclays declined 2.8% or 204 pence.

Credit Suisse Group AG fell 13% and UBS AG dropped 2% in New York trading.

BMW AG increased 1% to 61.70 after the automaker said it is not planning cut its production and its outlook for the year is as strong as estimated a month ago.

Yesterday, Volkswagen AG and Daimler AG lowered their global outlook.