IMF Plans $1 Trillion Boost; Yields Drop in German, Portugal Auctions

Arthi Gupta
18 Jan, 2012
New York City

European markets edged higher and Greece is set to demand cuts from private lenders. Germany sold

[R]1:30 PM Frankfurt – European markets edged higher and Greece is set to demand cuts from private lenders. Germany sold €3.44 billion of two-year notes and Portugal raised €2.5 billion in an auction today.[/R]

European markets traded higher on the hopes that the International Monetary Fund will boost its lending resources by $1 trillion and German yields fell in an auction of two-year notes today.

However, traders were cautious after the World Bank and the International Energy Agency lowered global economic outlook and oil demand growth forecast for the year.

Greece and its bondholders remain at odds in restructuring debt ahead of the resumption of talks today. Greece is looking to cut its total debt load by $130 billion from the $450 billion before the nation can access more loans from euro zone bailout fund.

The International Monetary Fund is planning to boost its lending resources by $1 trillion to shield the global economy against any major fallout from the European debt crisis, Bloomberg News reported on Wednesday, citing an unnamed official from a Group of 20 nations.

The lender expects China, Brazil, Russia, India, Japan and oil-exporting nations to contribute most to the deal, the official reportedly said. The IMF is seeking to strike a deal at the G-20 finance ministers and central bankers meeting to be held in Mexico City on February 25 and 26, the report added.

In Paris trading, the CAC-40 Index gained 7.81 or 0.2% to 3,277.80 and in Frankfurt the DAX Index edged higher 26.42 or 0.4% to 6,359.84.

Italian 10-year government bond yields were little changed at 6.50% and Spanish 10-year bond yields rose three basis points to 5.17%.

German, Portuguese Bond Auction

Germany sold €3.44 billion of its 0.25%, two-year notes at an auction today, the Bundesbank said in a statement.

The average yield was 0.17% compared to 0.29% in the previous auction held on December 14. The bid-to-cover ratio was 2.2 compared with 1.4 at the December auction.

The yield on the German 10-year government bond rose 0.1 basis point to 1.797%.

Portugal sold the maximum target of €2.5 billion of three-, six-, and 11-month bills in an auction today.

The debt management office issued €1.25 billion of 11-month bills due in December 2012 at an average yield of 4.986% and bid-to-cover ratio was 2.1.

Portugal also sold €754 million of six-month bills due in July at an average yield of 4.74% compared with an average yield of 5.25% at a previous auction of six-month debt on November 16. The bid-to-cover ratio in today’s auction was 3 versus a bid-to-cover ratio of 4.1 in November.

The debt agency also sold €496 million of three-month bills at an average yield of 4.346% compared with an average yield of 4.346% at a prior three-month auction on January 4. The bid-to-cover ratio was 4.1 against a bid-to-cover ratio of 2.4 in the last auction.

World Bank Lowers Outlook

The World Bank on Wednesday slashed its outlook for the global economy. The lender now estimates the global economy to grow 2.5% in 2012, down from the June prediction of 3.6%, according to the latest edition of the Global Economic Prospects 2012. The outlook for 2013 was slashed to 3.1% from 3.6%.

The euro area is forecast to contract 0.3% this year, against the projection of 1.8% growth made in June. The U.S. outlook was cut to an expansion of 2.2% this year from 2.9%.

IEA Cuts Oil Demand Growth Forecast

The International Energy Agency lowered global oil product demand growth from the earlier 1.3 million barrels per day to 1.1 mbd for 2012.

The agency said that OPEC crude supply in December rose 240,000 barrels per day to 30.89 mbd, the highest level in more than three years, on a rapid recovery in supplies from Libya, and to a lesser extent from Saudi Arabia and the UAE.

Gainers & Losers

Accor SA soared 4.1% to €21.94 after the hotel operator reported fourth quarter total revenue dropped 1.1% to €1.503 billion from €1.519 billion in the year-ago quarter. The negative impact of the asset-management strategy reduced revenue by €93 million and impacted growth by 6.1%.

ASML Holding NV rose 1.3% to €34.12 after the semiconductor equipment maker reported fourth quarter total net sales fell 20.4% to €1.21 billion, from €1.52 billion in the prior year. Net income in the quarter declined 30% to €284.7 million or 68 cents per share from €406.8 million or 93 cents per share a year ago.

Bayer AG dipped 0.02% to €54.85 after the chemical and pharmaceutical company’s cancer medicine regorafenib met the primary endpoint of improvement in overall survival rate in patients suffering from metastatic colorectal cancer.

BHP Billiton Ltd. climbed 0.8% to A$37 after the diversified miner reported second quarter iron ore production rose 22% to 41.07 million tons from the year-ago quarter, boosted by record quarterly production at Western Australia based mines. Production of metallurgical coal grew 9% from last year to 8.49 million tons.

Norsk Hydro ASA fell 0.4% to NOK 30.70 after the Norway-based aluminium company decided to curtail one of three production lines at its Kurri Kurri aluminium plant in Australia and cut 150 jobs.