Eurozone bond market tension rises

Spanish and Italian interest rates climbed on Monday, but Germany and for the first time France borrowed at negative rates, marking new tension on sovereign debt markets as eurozone ministers met.

The Spanish 10-year rate surged again above the danger level of 7.0 percent on secondary bond markets to 7.023 percent in late trading from 6.912 percent late on Friday.

A rate above 7.0 percent is believed to put a eurozone country at risk of needing a debt rescue.

The Italian 10-year rate rose to 6.088 percent from 6.016 percent.

Rates of more than 6.0 percent are considered unsustainable over the long term.

With the equivalent rate for benchmark German Bunds at 1.325 percent, the difference, or spread, with Spanish bonds rose to 5.698 percentage points, a sign of tension on sovereign bond markets.

In placements of shorter-term debt, Germany issued 3.3 billion euros ($4.06 billion) worth of six-month debt at a record low -0.03 percent.

Investors had been prepared to snap up 5.5 billion euros worth of German paper even though the negative rate essentially means they were paying Berlin to lend it money.

The French government borrowed for the first time ever at negative rates as well, raising almost 6.0 billion euros in three- and six-month debt at minus 0.05 percent and minus 0.06 percent respectively.

Among European nations, Austria, Denmark, Finland, France, Germany, the Netherlands and Switzerland have all attracted investors willing to pay to hold their debt.

One reason is that such countries forecast economic growth this year, though it might be slight, compared with those which expect business activity to contract.

France for example has estimated its economy would grow by 0.3 percent, while Spain forecasts a contraction of 1.7 percent and Italy one of 2.0 percent.

Many institutional investors are also obliged to place funds in assets that have top AAA ratings, "and there are not so many of these investments," noted Patrick Jacq, a bond strategist at BNP Paribas.

France is rated AAA by two of three main agencies, Moody's and Fitch, which makes it eligible for such placements.

In addition, the new French government "seems for now to want to stick to its fiscal targets, which reassures the markets," Jacq said.

Paris is aiming for a public deficit this year equivalent to 4.5 percent of gross domestic product (GDP), and wants to reach the EU limit of 3.0 percent in 2013.

Last week, French authorities announced 7.0 billion euros in additional taxes this year to help attain that objective.

On Monday, France borrowed another 9.373 billion euros via the sale of medium and long-term debt, and the rate paid on new 10-year debt was close to a record low point.

Demand for French 10-year bonds was two to three times the amount on offer, and the 10-year yield was 2.53 percent, slightly higher than a record low of 2.46 percent at a similar issue on June 7.

In Paris, French President Francois Hollande said Monday that controlling public finances and reducing the nation's debt were a question of France's "future sovereignty".

France will nonetheless have to make sure it does not slip off track, Jacq said, or it will quickly find its bond rates climbing higher.

The 10-year spread with Germany, which plans to cut its public deficit to 0.9 percent of GDP this year, stood above 1.0 percentage point on Monday.

Meanwhile, analysts said they did not expect a Eurogroup meeting of eurozone finance ministers in Brussels to make significant progress on issues arising out of an EU summit 10 days earlier.

That summit was presented by EU leaders as a breakthrough in structuring help for Spanish banks, by separating it from national debt, and by establishing the basis for a eurozone banking union.

"Investors doubt the capacity of the two countries (Spain and Italy) to clean up their public finances, given the worsening of the economic situation," Jacq commented.

The ministers were expected to delay most decisions concerning Greece, which wants more time to meet rescue terms, on Cyprus which wants help for its banks, and on Spanish banks, to a meeting on July 20.

Elsewhere, data from the Bank of Portugal showed that Portuguese banks, which are unable to borrow on commercial terms on the inter-bank market, borrowed 60.5 billion euros from the European Central Bank in June, setting a record.

This borrowing by Portuguese banks has accelerated since May 2011 when Portugal obtained a rescue of 78 billion euros from the European Union and International Monetary Fund.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • New law to allow Japan to supply U.S. military in South China Sea, say officials
    New law to allow Japan to supply U.S. military in South China Sea, say officials

    By Nobuhiro Kubo and Tim Kelly TOKYO (Reuters) - Prime Minister Shinzo Abe's plans to expand Japan's non-combat role in armed conflicts beyond "areas around Japan" could see Tokyo becoming dragged into action in the South China Sea in support of U.S. forces, government and ruling party sources say. Abe will send legislation to parliament next month - with the backing of his coalition partners virtually assuring its passage - allowing Japan to ship fuel and ammunition to American units …

  • Philippines accuses China of turning water cannon on its fishing boats

    Filipino activists denounced China's coast guard on Tuesday for turning water cannon on Philippine fishing boats in disputed waters, near where hundreds of Filipino and American Marines landed on a beach in a mock assault. The presidential palace in Manila said China's coast guard used water cannon on Monday to drive away a group of Filipino fishermen at Scarborough Shoal, damaging some of their wooden boats. …

  • U.S. says if China used water cannons on Philippine boats, would be provocative'

    The U.S. State Department said on Tuesday that if reports that China used water cannon son Philippine fishing boats in disputed waters are accurate, it would be a provocative step. Filipino activists have accused China's coast guard of turning water cannons on civilian boats in the disputed area on Monday. …

  • Pacmania sweeps Philippines ahead of Mayweather clash
    Pacmania sweeps Philippines ahead of Mayweather clash

    Manny Pacquiao's face is on shirts, dolls and postage stamps, his life story is playing in movie houses and millions are getting ready to party as the Philippine boxing hero's "fight of the century" nears. Pacmania is sweeping the Southeast Asian nation of 100 million people ahead of the May 2 Las Vegas bout against unbeaten Floyd Mayweather to decide who is the best boxer of their generation. Of course, it's the fight of the century," Manila film producer Lucky Blanco told AFP. …

  • ‘Racist remark vs Pinays not reflective of HK sentiment’
    ‘Racist remark vs Pinays not reflective of HK sentiment’

    The Philippine consulate general in Hong Kong believes that the “racist” statement of legislator Regina Ip against Filipina domestic helpers in Hong Kong is not reflective of the general sentiments of the Hong Kong community. Hong Kong is home to more than 173,00 Filipinos working mostly as household service workers. “They have left their loved ones back home to earn a decent living taking care of Hong Kong families. This, in turn, has engendered positive impact on both the quality of life …

  • SWS: Gov’t rating sinks to record low
    SWS: Gov’t rating sinks to record low

    “The Aquino administration is firmly determined to carry on and complete priority programs in all five pillars of the Philippine development plan, to ensure that reforms will be sustained by strengthened public institutions, to tread the righteous path and ensure that good governance becomes the norm at all levels of government, and to sustain and make permanent the gains from the transformation of mindsets and institutions,” Coloma added. Lawmakers expressed belief yesterday that the Aquino …

  • ‘Pacmania’ sweeping the nation
    ‘Pacmania’ sweeping the nation

    Manny Pacquiao’s face is on shirts, dolls and postage stamps, his life story is playing in movie houses, and millions are getting ready to party as the Philippine boxing hero’s “fight of the century” nears. Pacmania is sweeping the nation of 100 million people ahead of the May 2 Las Vegas bout against unbeaten Floyd Mayweather Jr. to decide who is the best boxer of their generation. …

  • House committee to put Bangsamoro police under PNP
    House committee to put Bangsamoro police under PNP

    The House ad hoc committee on the proposed Bangsamoro Basic Law (BBL) will put police forces in the envisioned new autonomous Muslim region under the Philippine National Police (PNP), and not under the regional chief minister. “We will delete the provision in the draft BBL giving the chief minister operational, administrative and disciplinary control over police forces in the region,” Cagayan de Oro City Rep. Rufus Rodriguez, committee chairman, said in a television interview. He said under …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options