Bonds: Italy sale brings down yields

Date: Thursday 26 Jan 2012

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

Italy: 6.05% (-18bp)
Spain: 5.21% (-19bp)
France: 3.1% (-5bp)
Germany: 1.87% (-7bp)
UK: 2.09% (-7bp)
US: 1.95% (-5bp)

The big news on debt markets today was a strong sale of €4.5bn in Italian zero coupon bonds due for repayment in 2014. The yield, which would be paid at maturity, was 3.763%, down from 4.853% back in December. The bid to cover ratio was 1.71.

Rome also sold €0.5bn of inflation linked two year bonds.

A successful sale of €5bn in IOUs is not bad for a country seen as the biggest sovereign risk amongst the major nations. It was this realisation which pushed down yields on French and Spanish bonds.

There were also several reports of a final deal between the Greek government and its private sector lenders, possibly involving a coupon of 3.75% on new bonds to replace the now virtually useless ones.

The Federal Reserve also gave investors some visibility on the future monetary landscape by indicating interest rates will stay low until late 2014. Ben Bernanke, the Chairman of the Fed, added that quantitative easing remains firmly “on the table”.

There have also been reports during the day that the European Central Bank has been in the market for Portuguese bonds as it seeks to support the struggling periphery nations of the euro area.

BS

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