Mensajepor Mr_Baca » Lun Jul 18, 2011 12:54 pm
DJ UPDATE: Spain, Italy Bonds Fall, Yield Spreads Hit Euro-era Records
18-Jul-2011
-- Spanish 10-year bond yields hit 6.3%, Italy back over 6%
-- Summit Thursday needs to deliver convincing, detailed Greek solution
-- Spanish debt auction also in focus
(Rewrites, adds details, comments, background throughout.)
By Mark Brown
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Bond investors Monday ratcheted up the pressure on politicians to deliver a solution to the Greek debt crisis, selling bonds issued by weaker euro-zone sovereigns and pushing yields on Spanish and Italian debt to euro-era highs.
Yields on Spain's 5.5% bond maturing April 2021 climbed above 6.30% for the first time since the introduction of the single currency. Italy's 10-year yields rose above 6%, taking the spread over German bunds to a euro-era high of 336 basis points, before dropping back to around 5.96% in late trading in Europe, according to Tradeweb.
Fears that the Greek debt crisis is spreading were once again to blame, even after the publication of the European Bank Authority's stress tests late Friday showed that just eight out of the 90 banks had failed.
"The stress tests did not offer any new information and the market has gone back to what it was doing before," said Richard Kelly, head of European rates and FX research at TD Securities. "That is sell the periphery."
Fears that the Greek crisis has morphed into a systemic euro-zone debt crisis mounted last week, causing investors to sell Spanish and Italian bonds and pushing yields close to levels that some observers think could be unsustainable.
Strategists at JP Morgan Chase & Co said in a note late last week that sovereigns start to lose access to bond markets when five-year yields reach 6.5% or 10-year yields reach 7%.
If that were to happen to Spain and Italy, they said, the funding requirement of the euro-zone's temporary bailout fund, the European Financial Stability Facility, or EFSF, would need to rise to over EUR1 trillion.
Euro-zone leaders will meet Thursday at a summit to discuss Greece.
Strategists at Nomura said that if they agree to let Greece buy back bonds, this would "remove the systemic dimension" from the Greek crisis, but "we cannot be confident... that the right sort of package will be delivered this week."
European Central Bank Executive Board Member Lorenzo Bini Smaghi Sunday endorsed the idea of Greece buying back its bonds using EFSF funds, but such a plan is opposed by Germany.
Another key event due Thursday is an auction of EUR1.75 billion to EUR2.75 billion of 10-year and 15-year Spanish bonds.
Annalisa Piazza, economist at Newedge, said the amount of bonds on offer was small by Spanish standards. "Risks of an under-subscribed auction are too high at the current juncture and it would put further pressure on the already fragile Spanish debt situation," she said.