Samaras New Greek Premier, Spanish Nears Bailout Conditions

Arthi Gupta
21 Jun, 2012
New York City

European markets sharpened focus on Spain as the country battles worsening fiscal conditions. Spain raised

[R]1:30 PM Frankfurt – European markets sharpened focus on Spain as the country battles worsening fiscal conditions. Spain raised €2.2 billion and France sold €8.43 billion of debt in an auction today at diverging borrowing costs. Manufacturing sector activity was mixed in the euro area.[/R]

European markets edged lower on the worsening fiscal situation in Spain fueling speculation that the country may be forced to seek a bailout from international lenders sooner than expected. Spain is also expected to release the state of its banks today.

However, Spain managed to raise €2.2 billion in a bond auction at higher yields, whereas France sold €8.43 billion of debt at lower borrowing costs today.

In early trading, investors were cautious after weak global manufacturing data and no announcements of additional stimulus measures from the Fed.

Antonis Samaras, leader of the conservative New Democracy party was sworn in as Greece''s new Prime Minister on Wednesday and will lead a coalition government of three parties.

The conservative pro-bailout New Democracy party that won 29.7% of the votes or 129 seats in Sunday''s polls are the senior partners in a coalition with the socialist Pasok party and the smaller Democratic Left party.

All three parties back Greece’s pledges to the austerity measures laid as a precondition for financial aid packages from the troika but are determined to renegotiate soften harsher terms on minimum wages and the debt repayment schedule.

In Paris trading, the CAC-40 Index declined 10.32 or 0.3% to 3,116.20 and in Frankfurt the DAX Index edged lower 22.30 or 0.4% to 6,369.70.

The yield on Spain’s benchmark 10-year bonds declined 11 basis points to 6.60% and Italian 10-year yields fell five basis points to 5.71%.

Spanish Bond Auction

The Spanish Treasury sold €2.2 billion or $2.8 billion of bonds maturing in 2014, 2015 and 2017 at higher yields.

The Treasury sold €700 million of the April 2014 bond at an average yield of 4.706% compared to 2.069% at the last auction of held in March.

Spain sold €918 million of the bond due in July 2015 at an average yield of 5.457% compared to 4.876% at the prior auction in May.

Also, the nation sold €602 million of the July 2017 bond at an average yield of 6.072% compared to 4.960% at the previous auction last month.

The bid-to-cover ratio was high in all the three bond issuances.

French Bond Auction

France sold €8.43 billion of debt in an auction today at lower borrowing costs.

France raised €3.34 billion from five-year notes at an average yield of 1.43% compared with 1.72% on May 16.

The country also sold €2.78 billion of two-year notes at an average yield of 0.54% compared with at an average yield of 0.74% at the last auction on May 16.

The nation sold €1.22 billion of 2015 notes at an average yield of 0.83% compared with 1.51% in the previous auction held on January 19 and €1.1 billion of 2016 securities at an average yield of 1.05% compared with an average yield of 1.40% in a similar auction on March 15.

Euro Area Private Sector Activity Contracts

Euro-zone private sector output contracted at the steepest pace in three years in June, a survey by Markit Economics showed today.

The purchasing managers'' index for the manufacturing sector dropped to a 44.8 in June from 45.1 in May a 36-month low.

French Factory Sector Rises

The seasonally adjusted purchasing managers; index for the French manufacturing sector rose to a two-month high of 45.3 in June from 44.7 recorded in May.

The service sector indicator rose to a three month-high of 47.3 in June from 45.1 in May.

German Manufacturing Sector Shrinks

German manufacturing purchasing managers'' index fell to 44.7 in June from 45.2 in May. This was the weakest reading in 36 months.

The services activity index dropped to a seven-month low of 50.3 in June from 51.8 in May.

Gainers & Losers

Deutsche Bank AG fell 0.9% to €28.8 after the German investment bank terminated exclusive negotiations with Guggenheim Partners over a potential sale of RREEF, its global alternative asset management business.

Plaza Centers N.V. rose 2.2% to PLN 2.33 after the emerging markets property developer completed the sale of 47 U.S. shopping centres to BRE DDR Retail Holdings LLC for a purchase price of circa $1.43 billion.

Technicolor SA plunged 5.6% to €2.06 after the French color film process company’s majority shareholders approved capital increases of between €167 million and €191 million from U.S.- based private equity firm Vector Capital Corp.

TNT Express NV, the express and mail delivery services company gained 0.9% to €9.24 after U.S.-based UPS, the package delivery company said it would commence the €9.50 per share public cash offer for the Netherlands-based company on June 22.

Early this year, UPS agreed to buy TNT at around €5.16 billion or $6.77 billion.