German Auction Drags European Indexes; Italian Yields Fall

Arthi Gupta
11 Jan, 2012
New York City

European markets edged lower after Germany sold

[R]1:00 PM Frankfurt – European markets edged lower after Germany sold €3.15 billion of 5-year treasury notes at lower yield. EU Economic Affairs Chief Olli Rehn was confident of a settlement on private sector involvement in Greece. Technip awarded €135 million for the Golden Eagle development in the UK North Sea.[/R]

The benchmark indexes in Europe dropped amid strong demand for an auction of 5-year German treasury notes.

Yesterday, investors were jittery after Fitch’s head of global sovereign opinions David Riley warned that there is a “significant chance” that the view on the Italian debt will fall by the end of the month.

Separately, Fitch’s director of sovereign international and public finance, Ed Parker that France would keep its triple-A credit view in 2012 unless there is a major economic shock.

An auction of 5-year German treasury notes maturing on February 24, 2017 saw strong demand with bids totaling €8.97 billion against the €4 billion on offer. Germany sold €3.15 billion of treasury notes at an average yield of 0.9%, less than the 1.11% in the last auction on December 7.

The bid-to-cover ratio was 2.8 compared to 2.1 in an auction of 2016 notes on December 7.

German five-year bonds yields dropped 2.2 basis points and yielded 0.808%.

“We are about to finalise shortly the negotiations on private sector involvement,” EU Economic affairs chief, Mr Olli Rehn said at an economic seminar at the European parliament.

The euro-zone offered €130 billion in October as rescue aid to Greece but on the condition that banks accept at least a 50% write down on the Greek debt they hold to erase about €100 billion from the total debt of over €350 billion.

The troika of the IMF, the European Central Bank and the European Commission are to assess steps taken by the Greek government in terms of the austerity measures that would allow them to receive a second bailout package of €130 billion.

The German Chancellor Angela Merkel and International Monetary Fund managing director Christine Lagarde met yesterday to discuss the European debt crisis with a special focus on Greece.

Lagarde is expected to meet with French President Nicolas Sarkozy today.

In Paris trading, the CAC-40 Index declined 8.65 or 0.3% to 3,202.14 and in Frankfurt the DAX Index edged lower 29.53 or 0.5% to 6.128,67.

Spanish 10-year yields fell 20 basis points to 5.25% and Italian 10-year yields dropped 15 basis points to 6.95%.

The Austrian central bank head Ewald Nowotny said in a radio interview that the Austrian banks are not in danger due to exposure to Hungary and have necessary capital reserves to handle the situation.

Nowotny, who heads the Austrian central bank, said ""our engagement is around €30 billion, including purchases of government bonds.""

Technip Secures Contract

Technip SA, a French operator of gas and oil engineering, technologies and projects secured a contract worth about €135 million from Nexen Petroleum U.K. Limited for the Golden Eagle development in the UK North Sea.

This contract awarded to the company is the largest for a project in the United Kingdom Continental Shelf.

NYSE, Deutsche Boerse Merger Deal Nears Collapse

The proposed merger of NYSE Euronext Inc. and Deutsche Boerse AG is nearing collapse after European antitrust regulators have urged rejection of the deal on fears that the European derivative markets would become highly monopolized, according to media reports on Tuesday.

Gainers & Losers

Air France-KLM rose 2.1% to €3.97 after the Franco-Dutch airline confirmed that it has agreed to purchase 25 wide-bodied Boeing 787-9 Dreamliners in a deal worth over $5 billion at list prices.

CropEnergies AG fell 3.3% to €5.11 after the German bioethanol maker said it expects growth in revenues and earnings in the current financial year 2011/12.

Revenues for the year are expected to be between €550 million and €570 million and boosted its annual net earnings by 37% to €26.4 million compared to €19.2 million a year ago.

Continental AG dipped 0.9% to €55.87 after the German automotive supplier estimates sales to increase about 5% in 2012, according to reports.

Sodexo SA climbed 0.1% to €56.29 after the French multinational corporation said its first quarter revenues grew 8.1% to €4.61 billion from €4.27 billion last year. The company reported 6.8% organic growth for the quarter.

Norsk Hydro ASA slid 0.5% to NOK 29.35 after the Norwegian aluminium company said that it is considering curtailing production at its Kurri Kurri aluminium plant in Australia, citing weak macro-economic environment.

Vivendi SA declined 1.3% to €16.07 after the French media company issued a €1.25 billion bond with a 65 month maturity and a 4.125% coupon at a price of 99.405%, corresponding to a 4.253% yield.