Bonds: A good day for the French

Date: Thursday 02 Feb 2012

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

Italy: 5.60% (-8bp)
Spain: 4.93% (+8bp)
France: 2.9% (-13bp)
Germany: 1.79% (-1bp)
UK: 2.09% (+4bp)
US: 1.81% (-1bp)

French bond yields dipped below 3% today on the open market after the country managed to sell €5.698bn in benchmark 10 year notes at an average yield of 3.13%, down from 3.29% at a similar auction at the beginning of January.

Spain didn’t enjoy the same luck as it only just reached its target in a sale of €4.5bn in three and four year bonds.

Madrid’s benchmark 10 year yield gained during the day after several days of very welcome falls. The trouble for the country is that the European Central Bank has provided banks with three year credit lines. This incentivises purchases of short term debt but banks cannot fund long term loans.

The general picture amongst the distressed Eurozone countries, however, is improving. France's auction success today will give confidence to investors that the European Financial Stability Facility and its successor, the European Stability Mechanism, can be supported by the single currency area’s second biggest economy.

BS

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