Italian, Spanish Bond Yields Rise on Lack of Confidence

Devan Biswas
12 Jun, 2012
New York City

European markets traded higher in choppy trading but stress in bond market turned investors cautious. Spanish bond yields rose above 6.5% for the second day in a row and Italian bond yields jumped above 6% forcing policy makers to turn attention to Italy.

[R]3:30 PM Frankfurt – European markets traded higher in choppy trading but stress in bond market turned investors cautious. Spanish bond yields rose above 6.5% for the second day in a row and Italian bond yields jumped above 6% forcing policy makers to turn attention to Italy.[/R]

European markets traded higher in a choppy trading as bond markets movements overshadowed stocks.

The shifting tides in the euro zone turned attention to Italy and Greece and bond yields rose for the second day in a row.

The yield of 10-year Italian bonds rose to 6.14%, an increase of 10 basis points and crossed above 6% for the first time in a few months. The sustained increase in the rate added to the urgency of action from policy makers to shore of the confidence in the third largest economy with the second largest manufacturing base in the region.

Spanish 10-year bond yield rose to 6.66%, above 6.5% for the second day in a row.

In London trading FTSE 100 index gained 0.2% or 12.60 to 5,445, CAC-40 index in Paris added 4.29 to 3,047.05 and DAX index in Frankfurt advanced 12.88 to 6,153.93.

Market index in Athens gained were nearly flat ahead of election as parties opposing the bailout and preferring to stay in the euro zone were running neck to neck in opinion polls.

The worst performing index in the region, IBEX 35 index edged up 0.4% after the bank bailout failed calm investors and bond yields rose for the second day in a row.

The MIB index dropped 0.8% or 106.35 to 12,964.40 on the rising worries that Italy may be forced to share burden of Spanish bailout and may be forced to ask for help from European nations.

The stress in the bond market was evident in the latest debt auctions today.

The Netherlands sold €1.65 billion of 2.5% bonds maturing in 2033 at an average yield of 2.342% and fell short of the government plan to sell €2.5 billion.

Switzerland sold Sfr 761 million or $793 million of 3-month bills at an average yield of minus 0.79% compared to negative 0.75% yield on similar maturity bond auction on June 5.

Austria sold €1.1 billion of 10-year bond at an average yield of 2.33% and 50-year bonds maturing in 2062.

Stock Movers

Deutsche Lufthansa decreased 6 cents to €8.02 said May passenger count increased 0.3% to 9.23 million after the airline increased capacity by 1% and load factor decreased 0.1 percentage point to 77.90%.

The cargo and mail volume dropped 10.7% to 164,000 tons according to a release by the Germany’s largest air carrier.

Lafarge increased 1.5% to €31.17 after the cement maker said it plans to cut costs by €1.3 billion and lower its net debt below €10 billion from €12.4 billion as early as next year.

The cement maker is looking to cut savings of 400 million in the current year and 350 million in 2013 and trim capital expenditure and regain its investment grade debt rating.