Bonds: Risk perception down as Europe battles on

Date: Friday 20 Jan 2012

These were the yields and movements on some of the most watched countries’ 10 year bonds by the close in Europe today:

Italy: 6.25% (-12bp)
Spain: 5.49% (+26bp)
France: 3.09 (-5bp)
Germany: 1.93% (+7bp)
UK: 2.11% (+6bp)
US: 2.02% (+5bp)

For a very few, brief days, Eurozone governments may be able to jeer at credit rating agencies like footballer supporters at an away match and ask “who are ya, who are ya”?

Despite Standard & Poor’s downgrading of nine Eurozone countries’ debt ratings a week ago, France, Spain and Italy have all seen successful bond auctions this week.

Today, the yields on the so called “haven” bonds of Germany, the UK and the US all rose following several weeks of gains on European equity markets. This implies the “flight to safety” may be over, or at least temporarily suspended.

There have also been suggestions today that Germany may be willing to make concessions on a financial transactions tax that Britain opposes. The idea would be to win David Cameron’s support for a broad set of changes to the way Eurozone countries manage their budgets. Britain’s agreement is needed to implement those changes through the institutions of the European Union.

A further boost to the survival of the euro may come in a deal later tonight between Greece and its creditors on a bond swap. The agreement is rumoured to amount to a 70% “hair cut”, or loss, for the creditors but will see Greece agree to issue 30 year bonds at coupons rising from around 3% to near 5%.

BS

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