European Indexes Pare Gains, Germany Sells

Arthi Gupta
19 Sep, 2012
New York City

The European indexes pared early morning gains and Germany raised

[R]2:30 PM Frankfurt – The European indexes pared early morning gains and Germany raised €4.084 billion from the sale of its two-year note at positive yields. Spain faces more pressure from policymakers to request for a bailout.[/R]

European markets turned slightly positive after Bank of Japan offered a surprise stimulus and provided additional liquidity to the financial system.

Germany completed its bond offering but markets were focused on the timetable and size of the larger bailout for Spain. Spain has been averse in asking for a bailout that will force the nation to cut more government spending and increase taxes, something that the current government will like to avoid.

However, euro zone construction output fell and French leading economic index rebounded in July. Economic expectations in Switzerland declined slightly in September.

The Bank of Japan decided to increase the total size of the asset purchase program by 10 trillion yen to about 80 trillion yen. The central bank will purchase treasury discount bills by about 5 trillion yen and Japanese government bonds by about 5 trillion yen.

The bank also stated that the maximum outstanding amount of financial assets purchased through the program will be about 55 trillion yen and the maximum outstanding amount of loans provided will be about 25 trillion yen.

In Paris trading, the CAC-40 Index declined 5.21 or 0.2% to 3,507.48 and in Frankfurt the DAX Index edged lower 5.52 or 0.1% to 7,342.19.

The yields on Spain’s benchmark 10-year were at 5.85% and Italian yields on similar bonds were at 5.05%.

German Bond Auction

Germany raised €4.084 billion from the sale of its federal notes due September 2014, Bundesbank said. The auction drew bids totaling €8.446 billion against a target of €5 billion.

The average yield on the two-year debt rose to 0.06% from zero percent in the previous sale on August 22. The bid-to-cover ratio rose to 2.1 from 1.5.

Portuguese Debt Sale

Portugal sold €1.291 billion of 18-month bills due in March 2014, according to the Portuguese government debt agency IGCP.

The country also sold €709 million of six-month bills due in March 2013.