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Bonds: Europe calm before ECB long term facility kicks in

Date: Monday 19 Dec 2011

Bonds: Europe calm before ECB long term facility kicks in

At the close in Europe, these were the movements on 10 year bond yields amongst some of the most watched bond issuing nations:


Italy 6.838% (+24.6bp)
Spain 5.172% (-13.3bp)
France 3.096% (+3.9bp)
Belgium 4.372% (7.5bp)
Germany 1.88% (+3.1bp)
UK 2.07% (+2.2bp)
US 1.83% ((-1.6bp)


France shifted €7bn in short term debt, half of which was for repayment in just three months time. The bid to cover ratio was 2.6 and the average yield was 0.005%, significantly cheaper for the French government than a similar auction at the beginning of last week when the average yield was 0.222%.

Market sentiment in debt markets is being driven by the start, tomorrow, of the European Central Bank’s policy of lending unlimited amounts of money to banks for up to three years.

This is expected have a significant impact because it will enable euro area banks to avoid a credit crunch looming next year as billions of euros in loans are due to be re-paid.

It may also encourage those banks to start purchasing the debt of some of the struggling European countries because their debt can be used as collateral at the ECB.

Interestingly Greece is due to try and sell €1bn in three month bills tomorrow.

The effect of the three year funding facility may be to reduce the interest rates euro area countries are currently paying to borrow money. If that happens then it would be the first glimmer of real hope the distressed sovereigns of the Eurozone have seen for months.

BS

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