Rising Yields Drag European Indexes, UK Rates on Hold

Arthi Gupta
05 Apr, 2012
New York City

The European indexes pared gains after UK manufacturing and German industrial output fell in February. France sold

[R]3:30 PM Frankfurt – The European indexes pared gains after UK manufacturing and German industrial output fell in February. France sold €8.4 billion of bonds today and the Bank of England retained key rate and size of asset purchase program. U.S.-based Dick''s Sporting agreed to invest in JJB Sports.[/R]

European market edged lower after UK manufacturing production unexpectedly fell and German industrial output decreased more than estimated in February and rising bond yields rattled investors.

France raised €8.4 billion from a bond sale today at slightly higher borrowing costs.

In Paris trading, the CAC-40 Index fell 12.32 or 0.4% to 3,301.10 and in Frankfurt the DAX Index edged lower 55.14 or 0.8% to 6,728.57.

Italian 10-year bond yield climbed 13 basis points to 5.49%.and yield on similar Spanish government bonds rose 11 basis points to 5.80%.

French Bond Auction

France raised €8.439 billion from the sale of medium-to-long term bonds today at higher borrowing costs.

The debt management agency AFT sold €1.31 billion five-year OAT at a yield of 1.96% from 1.91% at the prior auction on March 1. The bid-to-cover ratio fell to 3.27 from 4.12.

France also auctioned €4.319 billion 10-year bonds at an average rate of 2.98% compared with 2.91% at the last auction on March 1. Demand exceeded the offer by 2.56 times compared to 2.19 in the prior issue.

The agency also raised €1.575 billion from bonds maturing on April 2026 at an average yield of 3.46% compared to 3.30% at the last auction. The bid-to-cover was 2.37.

The nation also sold €1.235 billion bonds maturing on April 2041 bonds at an average yield of 3.79%, lower than the 3.97% in the prior auction with a bid-to-cover of 2.7.

BoE Holds Rates

The Bank of England retained the benchmark interest rate at its record low level of 0.50% and maintained the size of its bond purchases unchanged at £325 billion.

German Production Falls, Construction Activity Soars

Germany''s industrial production dropped 1.3% in February from a month ago, offsetting the 1.2% growth in January, data from the Federal Ministry of Economy and Technology showed today.

On a yearly basis, industrial production fell 1% in February, reversing a 1.5% rise in January.

The seasonally adjusted purchasing managers'' index for the German construction sector surged to 55.7 in March from 35.3 in February, a survey by Markit Economics showed today.

UK Output Rises

The UK''s industrial production increased 0.4% from a month ago in February, data from the Office for National Statistics showed. Manufacturing production fell 1% from a month earlier in February.

Annually, overall industrial output fell 2.3% and factory output declined 1.4% in February.

Gainers & Losers

Air Berlin Plc fell 0.8% to €2.28 after the discount airline said capacity in March declined 6.7% from last year to 3.29 million. The number of passengers in the month decreased 1.1% to 2.57 million passengers from 2.59 million passengers in March 2011.

easyJet Plc rose 0.6% to 486.70 pence after the low-cost airline said March total passengers rose 4.4% to 4.63 million from 4.44 million a year ago. Load factor improved 1.9 percentage points to 88.8% from 86.9% last year.

Dechra Pharmaceuticals Plc soared 7.8% to 500 pence after the British veterinary pharmaceutical firm announced its agreement to buy Dutch veterinary company firm Eurovet Animal Health B.V. for a total cash consideration of €135 million or about £112.5 million on a debt-free, cash-free basis.

Gerry Weber International AG increased 7.5% to €30.51 after the German fashion and lifestyle firm said its retail sales in March surged 51% from last year to €26.3 million, mainly due to a 20% rise in like-for-like sales in Germany.

JJB Sports plc surged 10.8% to 18 pence after the sports retailer announced that U.S.-based Dick''s Sporting Goods has agreed to make a £20 million strategic investment in the company by purchasing £18.75 million in junior secured convertible notes and £1.25 million in ordinary shares of JJB Sports.

TeliaSonera AB gained 0.9% to SEK 42.68 after the telecom company sold its 18.6% stake in Smart Mobile, Cambodia, and struck a deal to increase its ownership in Ncell, Nepal.