Bonds: No alarms but Eurozone remains fragile

Date: Wednesday 14 Dec 2011

Bond markets remained in a fragile, if stable, condition through Wednesday as investors mulled comments from Angela Merkel on the future of the eurozone.

These were the values of some of the most watched 10 year bond yields:

Italy: 6.796% (+11.1bp)

Spain: 5.689% (-1.7bp)

France 3.191% (-7.4bp)

Germany 1.92% (-10.7bp)

UK 2.09% (-3.3bp)

U.S. 1.93% (-3.1bp)

Speaking to the German Parliament today Chancellor Merkel reiterated her view that there will be no “quick fix” to the euro debt crisis but that by moving “towards a fiscal and stability union” the Eurozone could escape its current difficulties.

She spoke after Ifo, the respected economic institute based in Frankfurt slashed its 2012 growth forecast for the German economy from 2.3% to 0.4%. Ifo did however suggest that Germany could still avoid a recession.

The European statistics office, Eurostat also revealed that industrial production in the euro area dropped 0.1% in October, slightly below expectations.

There were two significant bond auctions today

Italy sold €3bn in 5 year debt at a bid to cover ratio of 1.42 and at an average yield of 6.47% - high but, perhaps, not catastrophically so.

Germany sold €4.18bn in two year notes at a record low of yield of 0.29% with a bid to cover ratio of 1.43. These low yields on German debt indicate a declining appetite for risk.

BS

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