Bonds: Peripheral Eurozone bond yields rise on risk aversion

Date: Thursday 12 Jul 2012

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

Spain: 6.635% (+5.8bp)
Italy: 5.912% (+9.9bp)
France: 2.242% (-7.9bp)
Germany: 1.25% (-2.2bp)
UK: 1.53% (-3.3bp)
US: 1.49 (-3.4bp)

Concerns over global economic growth meant that the relatively 'safer' bonds of highly rated nations - such as Germany, the UK and US - gained on Thursday, while yields on peripheral European sovereign bonds advanced.

The big news of the day on sovereign debt markets though was Italian yields dropping at a short-term debt auction. The Treasury issued €7.5bn of 12-month bonds this morning at an average yield of 2.697%, over one percentage point lower than the borrowing rate of 3.972% at the previous comparable auction.

Bond expert Nicholas Spiro suggested that Italy is benefiting from Spain's rescue plan: "Italy's perceived creditworthiness is externally driven and it stands to reason that where Spain goes, Italy is likely to follow in the minds of most investors.

While the Italian 10-year bond yield on the secondary market initially eased after the auction, it had gained 9.9 basis point to 5.912% by the early evening.

In other news, the European Central Bank's (ECB's) overnight deposits dropped to a seven-month low of €324.9bn down from €808.5bn previously after policy makers slashed the deposit rate to zero. The news saw German two-year bond yields drop to an all-time low of -0.042%; borrowing rates on Austrian, Belgian, French and Dutch notes also dropped to record-lows.

Meanwhile, the UK debt management office sold £3.5bn in 10-year gilts at a record-low yield of 1.72%.

BC

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