Register to get unlimited Level 2

Bonds: German auction terrifies markets

Date: Wednesday 23 Nov 2011

Bonds: German auction terrifies markets

Sooner or later the dam will burst.

That is the view many observers of the Eurozone debt crisis are forming as yields across the single currency area continue to rise.

The most shocking development today was an auction for German 10 year bunds. In theory these should sell like hot cakes as Germany is seen as the final citadel of economic stability in a region savaged by bad debt.

Yet this morning, the German government attempted to borrow €6bn from the market and investors only bid for €3.889bn, or 65%. This is profoundly worrying. It implies that the financial institutions that buy government debt view all of Europe as a dangerous place to put money. Even Germany.

The news of the uncovered auction sent the interest rate on German 10 year bonds up 21.9 basis points to 2.14% at 4.45pm London time.

The picture in the distressed south of Europe was even worse. Italy saw its yield on benchmark 10 year debt rise 14.7 basis points to 6.97%, a smidgen below the much discussed 7% threshold which forced Greece, Ireland and Portugal into a bailout.

Equivalent Spanish notes rose 4.1 basis points to 6.65% and Belgium, previously a bit part player in this crisis, has come storming into contention as a bailout candidate. Its yield rose 40.1 basis points to 5.48%.

This may have been caused by rumours that the Belgian government is trying to persuade France to cough up more support for the stricken bank Dexia. The Belgian argument is that France can borrow more cheaply and so ought to be chipping in more to the €90bn rescue scheme. Unfortunately, that kind of talk is understood by the markets to mean one thing: weakness.

France, however, which may be about to lose its AAA debt rating, is in no mood to make burdensome commitments. French 10 year yields climbed 15 basis points to 3.68%.

Because investors are looking for somewhere safe to put their money, the UK saw its debt yield drop 4.3 basis points to 2.13% while the US saw its 10 year treasuries climb very slightly to 1.92%, up 0.7 basis points.

BS

« Go back to news channel

Email this article to a friend

or share it with one of these popular networks:


Top of Page