Bonds: Bankia collapse hurting Spain and Italy

Date: Monday 28 May 2012

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

Spain: 6.47% (+16bp)
Italy: 5.74% (+8bp)
France: 2.54% (+2)
Germany: 1.36% (-1bp)
UK: 1.76% (flat)
US: 1.74% (flat)

bp = basis point or 0.01 percentage point

Spanish and Italian bonds fell, driving their yields up through Monday as continuing worries over the future of Bankia bank outweighed slightly better news from Greece.

Spanish lender Bankia is now looking for €19bn in state aid after its credit rating was cut to junk status by Standard & Poor’s on Friday. The worry is the Spanish government may not have the spare cash to help Bankia. The regional government of Catalonia has already put out the begging bowl after it faced being shut out of debt finance markets.

Italian debt weakened partly by association with Spain - simply by being seen as the second most imperiled country in the Eurozone. But data from the Italian national statistics office also surprised on the downside, with an index of sentiment in the manufacturing sector falling to 86.2 in May, from 89.1 in April. It is now at its lowest level since the summer of 2009.

In Greece opinion polls appear to show the pro-bailout New Democracy party leading amongst voters as the country prepares to vote in elections in June. If New Democracy wins a clear majority most observers believe it would reduce risk in the Eurozone.

BS

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