Spain and Portugal Worries Resurface; ECB Holds Rate

Arthi Gupta
04 Apr, 2012
New York City

The European indexes slumped after sovereign bond yields resumed the advance. The ECB held rates unchanged for the fourth straight month in April. Spain raised

[R]3:30 PM Frankfurt – The European indexes slumped after sovereign bond yields resumed the advance. The ECB held rates unchanged for the fourth straight month in April. Spain raised €2.6 billion at higher borrowing costs and Portugal offered its longest debt post bailout. Euro area retail sales fell in February.[/R]

European market sentiment worsened after Spanish bond yield rose and Portugal faced more scepticism and the prospect of Greece style restructuring.

The country indexes dropped more than 1% in stock trading after Spain proposed tough budgetary measures and proposed sharp reduction in spending as the nation struggles with recession and record unemployment but that failed to convince the bond market and yield perked up.

The ECB held rates unchanged for the fourth straight month in April. Spain raised €2.6 billion from a debt auction today as borrowing costs rose. Euro area private sector contracted in March and retail sales fell in February.

ECB Holds Rate

The European Central Bank kept euro-zone interest rates unchanged at a record low for the fourth month in a row in April.

The central bank maintained the key refi-rate at a record low 1%, the rate on the marginal lending facility was held at 1.75%, while the deposit facility rate was kept at 0.25%.

In Paris trading, the CAC-40 Index fell 57.90 or 1.7% to 3,348.88 and in Frankfurt the DAX Index edged lower 149.06 or 2.1% to 6,834.72.

Italian 10-year bond yield climbed 19 basis points to 5.26%.and yield on similar Spanish government bonds rose 11 basis points to 5.52%

Spanish Bond Auction

Spain raised €2.6 billion from a debt auction today, within the target range of €2.5 billion to €3.5 billion, the Bank of Spain said.

The Spanish Treasury sold €1.1 billion bonds maturing on January 2015 at an average yield of 2.89% compared to an average yield of 2.44% logged at the previous auction on March 15. The bid-to-cover ratio was 2.41 compared to 4.96 in March.

The Treasury also raised €0.973 billion from bonds maturing in October 201. The yield rose to 4.32% from 3.376% on March 1. The bid-to-cover ratio declined to 2.46 from 2.6 times in the prior issue.

The yield on the €0.489 billion bonds maturing on October 2020 was 5.338%. The bid-to-cover was 2.96.

Euro-zone Private Sector Contracts, Retail Sales Drop

Euro-zone private sector contracted in March, a revised report from Markit Economics showed.

The Composite Output Index, that measures activity in both manufacturing and services, fell to a three-month low of 49.1 in March from 49.3 in February.

The services business activity index climbed to 49.2 in March from 48.8 in February. The flash reading for March was 48.7.

French private sector output declined in March, while German growth weakened and Italy and Spain contracted further.

Separately, euro-zone retail sales fell 0.1% from a month ago in February, following a 1.1% rise in January, data from Eurostat showed.

On a yearly basis, retail sales fell 2.1% in February compared to the 1.1% decline in January.

UK Home Prices Rise

The UK home prices rose increased 2.2% in March, following the 0.4% fall in February, data from the Lloyds Banking Group''s Halifax division showed today.

Gainers & Losers

BTG plc rose 1.9% to 344.70 pence after the specialist healthcare company raised its revenue estimate for the year ended March 31 to £190 million-£195 million from the previous guidance of £160 million to £165 million.

Daimler AG fell 2.5% to €44.62 after the German automaker reported strong vehicles sales in the first quarter than last year, with 12% rise in unit sales of Mercedes-Benz cars and 20% increase in Daimler trucks sales.

International Power PLC dipped 0.2% to 402.20 pence after the British utility rejected the indicative proposal of 390 pence per share cash offer from French natural gas and electricity supplier GDF Suez SA, citing the offer grossly undervalues the company.

Porsche Automobil Holding SE dropped 2.2% to €43.54 after the German holding company stated March 2012 sales from a year ago fell 5% to 2,460 vehicles in the U.S.

Roche Holding AG declined 0.3% to Sfr159.90 after the Swiss pharmaceuticals and diagnostics holding company urged shareholders of Illumina to tender their shares into its increased offer of $51.00 per share in cash.