French and Spanish Debt Auctions Bring Temporary Relief Ahead of EU Summit
Debt auctions in France and Spain attracted solid demand and at lower yields than previously feared.
Madrid’s cost of borrowing, ranging from around 5.19 to 5.54 percent on the 4-, 5-, and 6-year paper, was the highest at a government sale since before the launch of the euro, but still far below the unsustainable 7 percent threshold.
France sold 4.35 billion euros of long-term bonds, with yields on both 10- and 15-year issues declining. The 10-year yield stood at 3.18 percent, with the premium investors charge for holding its bonds over benchmark German bunds falling 93 basis points.
“Demand is stronger than a month ago, although yields are fairly elevated. It is mildly encouraging,” said Nick Stamenkovic, bond strategist with RIA Capital Markets.
Just two weeks ago, Spain saw yields hit euro-era highs of 6.975 percent as it auctioned 10-year debt days ahead of a general election that swept a new center-right government into power.
French yields also spiked earlier this month on concern over its banks and triple-A credit rating.
Yesterday’s move by major central banks to prevent a global liquidity crunch is at least partly responsible for the decline in borrowing costs, but yields are unlikely to come down more substantially until European leaders announce a clear plan to tackle the crisis.
European leaders will meet at a summit on December 9, where Germany and France are expected to present their plans for a fiscal union.
Most market players are hoping that the fiscal union will allow the European Central Bank to step in to backstop struggling government, though Germany continues to resist such action.