Bonds: Risk seen down, Morgan Stanley remarks move markets

Date: Thursday 19 Jan 2012

These were the yields and movements on the benchmark 10 year bonds of some of the most watched countries:

Italy: 6:37% (-5bp)
Spain: 5.22% (+7bp)
France: 3.14% (flat)
Germany: 1.86% (+8bp)
UK: 2.05% (+9bp)
US: 1.98% (+8bp)

The movements today on ten year debt reflected a slight easing in risk perceptions as hitherto low yielding UK, US and German bonds crept up.

The main news on the markets were the successful auctions by both Spain and France this morning.

France sold €7.97bn in bonds with maturities ranging from two to four years. The country, which lost its AAA debt rating from Standard & Poor’s last week, saw the yield on two year notes fall from 1.58% in October to 1.05% today. The amount sold was just short of its maximum target.

Spain did similarly well, selling €6.6bn in four, seven and ten year bonds, well above the auction target of €4.5bn. The bid to cover ratio was 2.17. The average yield on ten year bonds was 5.403%, down from 6.975% in November.

Several comments today, including from negotiators, have suggested the talks between Greece and its creditors may be drawing to a conclusion, with a possible deal on replacement bonds. The debt crippled country is facing a repayment of €14.5bn in March which it simply cannot afford; a deal would enable it to draw on more Eurozone and IMF support.

Comments from Morgan Stanley today to the effect that the market had underestimated the impact of the ECB’s €489bn long-term refinancing operations (LTRO) boosted bank stocks.

The LTRO may also be boosting interest in Eurozone debt by giving banks large amounts of cheap money they can lend, at higher rates, to distressed Eurozone countries, or so some think.

BS

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