Bonds: Germany still destination of choice for debt investors

Date: Thursday 31 May 2012

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

Spain: 6.56% (-10bp)
Italy: 5.90% (-4bp)
France: 2.36% (-13bp)
Germany: 1.2% (-7bp)
UK: 1.57% (-8bp)
US: 1.57% (-5bp)

A mixed picture for the under pressure Eurozone countries on the debt markets. More money was pumped into German securities but Spanish yields also fell.

German bunds, US treasuries and UK gilts all rose sharply, pushing their yields to near record lows. Even France, which has not escaped unscated from the debt crisis, saw its yields fall.

Ominously, US first-quarter gross domestic product growth was revised downwards from 2.2% to 1.9% on an annualised basis. This came on the same day that closely watched data from ADP Employer Services showed the US economy added 133,000 jobs in May, short of the market expectation of 150,000.

Data from the Labor Department emphasised the point, with the agency saying first time jobless claims increased by 10,000 to 383,000 last week.

Comments from the European Commission suggest Spain will be given an extra year to get its budget deficit under control, this may explain the rise in Spanish debt today.

Interestingly amid all the gloom, some commentators are suggesting that if the country can sort out its banking system, its recovery in debt markets could be spectacular.

Analysts at morgan Stanley wrote: “we would be very bullish on Spain vs. other sovereigns if bank recapitalisation is dealt with convincingly.”

There is just one small problem, so far no one has come up with a convincing solution for the banks.

BS

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