Bonds: Spain shifts debt but who's buying?

Date: Tuesday 13 Dec 2011

In the sovereign debt market all eyes were on Spain this morning.

At a short term auction in Madrid investors came in with much higher than expected demand; much of that demand, however, is being ascribed to retail players, which denotes strong risk aversion. If people are selling equities to buy government debt that does not bode well for the EU.

In total €4.94bn in short-term debt was placed, at a bid to cover ratio of 3.1 times the supply on offer (compared to 2.1 times seen at the last auction).

Bond investors also had to absorb the news that the Japanese brokers Nomura had downgraded their rating for the European banking sector from bullish to neutral.

This follows negative comments yesterday from the ratings agencies Standard & Poor’s and Moody’s, the latter saying it would “revisit the ratings of all EU (countries) during the first quarter of 2012.”

Benoit Coeure, France’s candidate for a seat on the European Central Bank’s Executive Board, has been quoted by Bloomberg as saying the ECB might have to buy more sovereign bonds.

These were the interest rates on benchmark 10 year bonds amongst some of the major economies just after the close in Frankfurt:

Italy: 6.685% (+12.3bp)
Spain: 5.706% (-8.3bp)
France: 3.265% (-1.7bp)
Germany 2.03% (+0.7bp)
UK: 2.13% (+2.4bp)
US: 2.03% (+2.3%)

BS

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