Italian Bond Auction at Lower Yield, Euribo Changes Recommended

Nigel Thomas
11 Jan, 2013
New York City

European markets closed mixed and Italy completed the sale of

[R]4:30 PM Frankfurt – European markets closed mixed and Italy completed the sale of €3.5 billion bonds of 3-year maturity at a lower average yield of 1.85%. European authorities recommended changes in how Euribor rates are submitted and calculated.[/R]

Financial markets traded listless at the opening after markets in Japan and China diverged and local economic news highlighted persistent economic weakness.

European regulators asked for a major restructuring of the Euribor, the scandal plagued reference rate.

European Banking Authority and European Securities and Markets Authority as a part of the plan want to increase the accuracy of the Euribor and shrink the number of interest rates maturities submitted by half to seven.

However, the two authorities fell short of recommending direct oversight and did not require banks that are not submitting rates to Euribor to have internal governance structures.

The rate will continue to be monitored by the trade body, European Banking Federation. The two regulatory bodies do not have authorities to recommend changes to banks but the European Commission is expected to draft legislation later in the year that will require structural changes in how the rates are submitted and calculated.

FTSE 100 index increased 7.6 to 6,109, DAX index decreased 9.2 to 7,699 and CAC 40 index fell 12.3 to 3,691.

The euro closed at $1.3284 after Italy followed Spain and completed its bond offering at a lower yield.

Italian treasury office sold €3.5 billion of 3-year maturity that yielded 1.85%. The auction was closely watched as the election rhetoric in the nation picks up. The yield declined from 2.5% in the previous auction on Dec 13.

The 10-year Italian bond yield declined to 4.12% and the yield on Spanish bond of similar maturity eased 2 basis points to 4.89%. Spain yesterday sold total of 5.8 billion of bonds with maturities between 2015 and 2026.

The latest survey by the pollster SWG Company estimated center-left party led by Pier Luigi Bersani as the likely winner in the lower house but the Senate elections are too close to call.

Former Prime Minister Silvio Berlusconi is trailing second in the general election scheduled on February 24 and technocratic government leader Mario Monti fell further ad his approval rating declined to 30% compared to 38% in December and 71% when he assumed the office for the first time in November 2011.

Stocks in Review

Nokia closed up again on Friday after surging 11% yesterday on the hopes that the new smartphone Lumia will deliver better than expected earnings in the fourth quarter scheduled to be released in two weeks.

Resource sector stocks eased after China reported higher than expected annual inflation of 2.5% in December, lowering the prospect of another stimulus.

BHP Billiton declined 2.8%, Rio Tinto fell 2% and Anglo American Plc declined 1.5% to 2,040 pence.

Jeronimo Martins SGPS SA soared 6% to €15.55 after the Portugal based retailer said sales rose 11% in 2012. The company had guided last month that sales are expected to increase at least 10% annually for the three year through 2015.

SAP AG increased 1.3% to €61.35 after the supply chain and enterprise resource planning software developer released a new product in Palo Alto, California which the company claims will replace the software from Oracle, IBM and Microsoft.

CAP Geminin SA increased 2.4% to €34.30 after the close India-based rival soared 16% in Mumbai trading after it lifted its full-year sales outlook.