Bonds: Risk down as Portugal completes successful auction

Date: Wednesday 01 Feb 2012

At the close in Europe, these were the yields and movements on some of the most watched countries’ 10 year bonds:

Italy: 5.68% (-27bp)
Spain: 4.97% (-12bp)
France: 3.04% (-1bp)
Germany: 1.79% (-1bp)
Portugal: 15.2% (-118bp)
UK: 2.05% (+8bp)
US: 1.84% (+4bp)

Portugal managed to sell €1.5bn in short term debt this morning. One tranche, of €750m, in six month debt went at an average yield of 4.463%, compared to the 4.74% seen at a similar auction in mid-January. The bid to cover ratio was a healthy 2.65.

The remainder of the auction was made up of three month debt which sold at a yield of 4.068%, with a bid to cover ratio of 2.8.

This was a good showing by Portugal and the effect on its benchmark 10 year yields was significant, with the interest rate falling 120 basis points to 15.2%.

In Greece rumours continue to circulate about a possible deal between the government and its private sector creditors. The latest suggestion is that if creditors agree to a low coupon on new bonds they could be given a “sweetener” if Greece’s economy improves. As yet, however, no firm deal has been announced.

The general trend in the “at risk” euro area countries was a decrease in yield as positive manufacturing data from China, the US and Europe indicated that the global economy will grow in the first half of this year, hopefully dragging Europe along with it.

There is still momentum from the EU summit agreement reached on Monday where Eurozone leaders agreed to begin the operations of new bailout mechanism 12 months ahead of schedule. This, in addition to a huge injection of liquidity by the European Central bank in December is giving investors the sense that the Eurozone may survive in its current form, avoiding a debilitating default by Greece and, perhaps, improving its budgetary discipline.

BS

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