Sharechat Logo

While you were sleeping: Tepid demand for Spanish bonds

Thursday 5th April 2012

Text too small?

Spain's struggle to drum up demand for new bonds raised not only the nation's borrowing costs but also the spectre that the euro zone's sovereign debt crisis is far from over. Equities on both sides of the Atlantic fell as a result.

Spain sold a total of 2.59 billion euros of bonds, compared with a maximum target of 3.5 billion euros, according to Bloomberg News. Yields on the five-year notes it sold rose to an average 4.32 percent from 3.38 percent in a sale on March 1. Investors bid for 2.46 times the amount of debt allotted, compared with a bid-to-cover ratio of 2.59 at the previous auction.

That boosted the yield on Spanish 10-year bonds as much as 26 basis points to 5.71 percent. Italian bond yields soared too.

Meanwhile, the European Central Bank decided to keep interest rates at a record low of 1.0 percent, while the bank's president Mario Draghi warned that "downside risks to the economic outlook prevail".

"Given the present conditions of output and unemployment, which is at historical high, any exit strategy talking for the time being is premature," he said.

Euro-area services and manufacturing output contracted for a second month in March. A composite index based on a survey of purchasing managers in both industries dropped to 49.1 from 49.3 in February, London-based Markit Economics said today. That’s above an initial estimate of 48.7 on March 22. A reading below 50 indicates contraction.

In Europe, the Stoxx 600 Index lost 2.2 percent on the day.

In early afternoon trading in New York, the Dow Jones Industrial Average fell 0.91 percent, the Standard & Poor's 500 Index dropped 0.98 percent and the Nasdaq Composite Index shed 1.66 percent.

The Spanish auction “serves as a reminder to the market that Europe is still with us,” Mark Freeman, chief investment officer at Westwood Holdings Group in Dallas, told Bloomberg. “We still have a long way to go before things get worked out."

ADP's private-sector jobs data showed US employers added 209,000 jobs in March, continuing the recent trend of a pickup in the labour market.

Separately, the Institute for Supply Management's services-sector index for March fell to 56.0 percent from 57.3 percent in February, the private group reported.

It adds to the case that the world's largest economy continues to show signs of a sustained recovery. While that is good news, it also underpins the case that the US Federal Reserve won't need to add more stimulus measures to their promise of keeping interest rates at current lows until late 2014.

Federal Reserve Bank of Richmond President Jeffrey Lacker told Bloomberg that financial markets had assigned too high a probability that the Fed would begin a new round of asset purchases to reduce borrowing costs and spur economic growth.

BusinessDesk.co.nz

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar eases as market eyes pending GDP data
Evolve shareholders demand answers
Strong tourism, low rates keep lid on NZ current account deficit
Refining NZ margins jump to 18-month high
Goodman opts for underwritten $150m placement to raise capital
Kathmandu shares rise 9.3% on strong FY result, solid US performance
FMA seeks greater powers from the government
Goodman opts for underwritten $150m placement to raise capital
NZ dollar opens higher as dairy prices lift, oil eases
Napster's Sean Parker yet to seek OIO approval for Weta Digital stake

IRG See IRG research reports