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Bonds: French, Spanish yields fall after successful auctions

Date: Thursday 01 Dec 2011

Bonds: French, Spanish yields fall after successful auctions

The bond markets today centred around the successful auctions in France and Spain which both saw strong demand. Buyer interest appears to have been solid (at least by recent standards) helped by yesterday’s concerted action by central banks to provide cheap access to dollar funding.

Also worth mentioning, remarks by European Central Bank (ECB) President Mario Draghi, who seems to have left the door open to greater ECB pro-activeness so long as European governments do their bit as well.

France sold €4.346bn of medium and long-term debt (maturing in 2017, 2021, 2026, and 2041). In the case of the 10-year debt issue for example, of which €1.571bn was sold, the bid-to-cover ratio - which measures the strength of demand - rose to 3.05, from 2.24 at the previous auction. Even the 30-year debt placed today saw a very sharp increase in demand with the bid-to-cover ratio rising to 2.26 from 2.22 the last time around.

Yields on French 10-year bonds fell to an intraday low of 3.08% today,retreating by over 30 basis points (bp) for the session, the largest single-day decline seen in 20 years, according to Bloomberg.

In Spain, the country’s Treasury sold the maximum amount expected, €3.75bn, in mid- to long-term debt. The bid-to-cover ratio on the five-year issue came in quite strong, at 2.8, versus 1.8 on the previous occasion. Spanish 10-year bond yields dropped by a quite large 48.9bp to 5.74% today after the auction.

Italian yields, keenly-watched over the last few weeks, also eased today. The borrowing rate on an Italian 10-year note fell by 36.9 basis points to 6.65%, and is now under the dangerously high level of 7.48% reached in mid-November.

The yield on a 10-year US Treasury rose by 1.8bp to 2.09%, while the borrowing rate on a 10-year UK gilt fell 4.8bp to 2.26%. Germany’s 10-year bund yield fell by 10.2bp to 2.18%.

BC

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