Yields Rise Ahead of European Bonds Auctions

Arthi Gupta
03 Jan, 2012
New York City

European markets traded volatile as crude oil surged nearly 3% and investors feel the pressure ahead of sovereign bond sale from Spain and Italy next week. German jobless rate dropped in November but Spanish unemployment rose in December.

[R]1:30 PM Frankfurt – European markets traded volatile as crude oil surged nearly 3% and investors feel the pressure ahead of sovereign bond sale from Spain and Italy next week. German jobless rate dropped in November but Spanish unemployment rose in December.[/R]

European indexes traded volatile after crude oil surged on the rising tensions in the Middle East and China reported an increase in manufacturing activity in December. Markets were also under pressure ahead of sovereign bond auctions in the next two weeks.

Germany and France are set to offer first bond auction this week and raise €13 billion and next week Spain and Italy are scheduled to conduct their first bond auctions.

The yield spread of the French bonds to German bonds widened to 141 basis points and German bund rose 12 basis points to 138 basis points. The 10-year yield on the Italian bonds increased 2 basis points to 6.94% and similar Spanish bond yield increased 6 basis points to 5.2%.

Unemployment in Germany declined more than estimated in December but Spain''s jobless rate increased for the fifth consecutive month in December.

The Spanish Prime Minister Mariano Rajoy announced €8.9 billion spending cuts on Friday. The austerity package includes an increase in tax on capital gains and income tax and the government plans to freeze public sector pay for another year and aims to bring down the deficit to 4.4% of GDP this year.

However, Spain''s budget deficit may have exceeded 8% of gross domestic product in 2011, Finance Minister Luis de Guindos said in an interview with Cadena Ser radio on Monday. The deficit target for last year was 6% of GDP.

European Central Bank policymaker Jose Manuel Gonzalez-Paramo said during an interview to the French business daily La Tribune that he is confident that the euro will survive the debt crisis.

The Executive Board of the Riksbank will enter a sort of wait-and-see mode after a 25 basis point interest rate cut to 1.75% from 2%., Stefan Ingves, central bank governor said, according to the minutes of the December 19 meeting published on Tuesday.

In Paris trading, the CAC-40 Index declined 13.60 or 0.4% to 3,208.63 and in Frankfurt the DAX Index edged higher 63.88 or 1.1% to 6.139.57.

German Jobless Rate Drops

Unemployment in Germany declined more than estimated in December, data from the Federal Labor Agency showed today.

The seasonally adjusted jobless rate fell to 6.8% in December from 6.9% in November. The number of unemployed declined 22,000 to 2.89 million in December. In November, unemployment fell by 23,000.

Spanish Unemployment Rises

Spain''s unemployment increased for the fifth consecutive month 1,897 to 4.42 million in December from a month ago, data released by the Labor Ministry showed today.

During December 2010, the unemployment fell 10,221 on a monthly basis for the year 2011, unemployment increased by 322,286 or 7.86%.

Swiss Manufacturing Rebounds

The Swiss manufacturing sector rebounded in December, data from the SVME Association of Purchasing and Materials Management and Credit Suisse showed.

The seasonally adjusted purchasing managers'' index rose more than estimated to 50.7 in December from 44.8 in November.

Norwegian Manufacturing Shrinks

Norway''s manufacturing activity contracted further in December, survey results from the Fokus Bank and the Norwegian Association of Purchasing and Logistics showed.

The seasonally adjusted Purchasing Managers'' Index fell to 46.6 in December from 48.5 in November. This was the lowest level since October 2009.

Total Expands Position in USA

Total SA acquired certain assets in the oil-rich area of the Utica shale region in Ohio from Chesapeake Energy Corp. and EnerVest, Ltd. for $2.32 billion.

As per the agreement, Total''s subsidiary, Total E&P USA, Inc. has completed a joint venture deal with Chesapeake Exploration LLC, a unit of Chesapeake Energy, and affiliates of its partner EnerVest to acquire a 25% stake in their liquids-rich area of the Utica shale play located across 10 counties on the eastern side of the state of Ohio.

Total will also acquire a 25% share in any new acreage which will be acquired by Chesapeake in the liquids-rich area of the Utica shale play.

Gainers & Losers

Adecco SA rose 3% to Sfr40.52 after the Swiss human resource services firm agreed to acquire Japanese professional staffing services provider VSN Inc. for an enterprise value of €90 million.

BP plc gained 0.3% to 464.20 pence after the oil explorer said its contractor, Halliburton, should pay for the entire cleanup cost of as much as $60 billion following the Deepwater Horizon oil spill in 2010.

Valeo S.A. climbed 0.3% to €31.97 after the France-based industrial company acquired an 80% shareholding in the company Ruby from Chery Technology, a unit of Chinese automaker Chery Automobile.