Hopes of progress on Greek PSI talks

Thu, Jan 26 2012, 23:22 GMT
 by  Katarzyna Komorowska ,  Ivan Delgado Egea  - FXstreet.com

The outcome of the Fed monetary policy meeting which took place on Wednesday as well as the recent developments in the Greek situation spurred market optimism on Thursday. Rumors circulate that the meeting between the head of the Institute of International Finance Charles Dallara and senior bankers in Paris resulted in a new private sector creditors offer of an interest rate of 3.75%. 

Another controversial issue on Greece's tortuous negotiations appears to be whether the ECB is willing to participate in the debt swap, and European legislators are now keen to point out that the boost to sentiment would be very strong, at very little financial cost to the ECB, the UBS Strategy Analyst Geoffrey Yu observes. "The legality and principles behind such a step remain over to interpretation, but the lack of denials by the central bank may be enough to keep risk rallying until talks end - wires reported that the IIF will meet with the Greek government on Friday to discuss 'legal and technical issues'" Mr. Yun extended.

European Commission spokesman Amadeu Altafaj confirmed on Thursday in Brussels that the Troika is not considering a ECB writedown on Greek debt. Eurogroup Chair said that even if the ECB accepted losses by participating in debt-swap talks, they would be small. This announcement comes after IMF head Christine Lagarde put pressure on the ECB on Wednesday to take part in Greek debt restructuring.

According to Michel Derks from FxPro: "The ECB will be livid about the IMF’s stance. Two former members of the ECB Governing Council, Weber and Stark, resigned because they fundamentally disagreed with the bond-buying program and no doubt others in the ECB are just as uncomfortable. Buying the bonds of Europe’s fiscally miscreant sovereigns was something the ECB clearly did not want to do, but was forced to undertake in the interests of attempting to preserve market stability."

Italy bond auction meets target

At a the first debt auction held in Italy after S&P downgraded the country by two notches, the Italian Treasury managed to sell 500 million euros worth of inflation-linked securities out of a 250-500 million euro target. Papers maturing in September 2014 were sold at an average yield of 3.2%.

Italy also auctioned 4.500 million euros of 2-year, zero-coupon bonds. Yields on these papers dropped to 3.76% (in comparison with 4.85% at the end of December).

On Monday Italy will hold an auction of 5- and 10-year bonds.

Japan Stocks Slip as Yen Rises in Face of Noda's Call for Action

January 27, 2012 6:53 AM

Jan. 27 (Bloomberg) -- Japanese stocks fell for a second day as the yen strengthened even after Prime Minister Yoshihiko Noda pressed the central bank for “bold” action to counter the currency's gain. Energy companies and trading houses gained as commodity prices climbed.

Sony Corp., a consumer electronics maker that gets about 70 percent of its sales abroad, slid 1.4 percent. Nintendo Co. sank 4.1 percent after the video-game console maker tripled its loss forecast. Mitsubishi UFJ Financial Group Inc., Japan's top lender by market value, lost 1.4 percent, after U.S. banking stocks dropped on the Federal Reserve's pledge to keep rates near zero through 2014. Mitsui & Co., which counts commodities as its biggest source of profit, rose 2.1 percent as crude and metals prices gained.

The Nikkei 225 Stock Average fell 0.1 percent to 8,841.22 at the 3 p.m. close in Tokyo, with a weekly gain of 0.9 percent. The broader Topix slipped 0.5 percent to 761.13, with about three shares dropping for every two that gained.

“The yen just keeps getting stronger and it's hurting Japanese stocks,” said Tomoichiro Kubota, a market analyst at Matsui Securities Co. “With the Fed saying they'll keep zero rates for a long time and Europe facing all of these government bond redemptions, the concern has been reignited that the yen will keep rising.”

Futures on the Standard & Poor's 500 Index lost 0.3 percent today. The gauge lost 0.6 percent in New York yesterday after U.S. new home sales unexpectedly fell and jobless claims climbed.

Banking Shares Drop

Banking shares slid yesterday in New York after the Federal Reserve's pledge to keep interest rates at a record low for longer than originally forecast, spurring investors to seek higher yields.

Mitsubishi UFJ Financial Group slipped 1.4 percent to 351 yen. Mizuho Financial Group Inc., Japan's third-biggest bank by market value, lost 1.7 percent to 115 yen.

Japanese equities slumped after the yen extended gains even after Noda called on the Bank of Japan to take more aggressive steps to stem the currency's increase and deflation.

The yen appreciated as much as 76.90 against the dollar today in Tokyo, compared with 77.63 at the close of stock trading yesterday. The yen also strengthened to 100.77 against the euro from 101.89, cutting the value of income at some exporters.

Exporters Fall

Sony fell 1.4 percent to 1,414 yen. Kyocera Corp., an electronic equipment manufacturer that earns most of its revenue abroad, lost 2.1 percent to 6,500 yen.

Nintendo sank 4.1 percent to 10,310 yen after more than tripling its loss forecast to 65 billion yen ($844 million) for the fiscal year ending March. Sales of its 3DS handheld player have been sapped by rising demand for Apple Inc. gadgets such as the iPhone and iPad.

Energy companies and trading houses advanced the most in the 33 Topix industry groups. Mitsui & Co. rose 2.1 percent to 1,299 yen while Mitsubishi Corp. gained 2.3 percent to 1,757 yen. Inpex Corp., Japan's top oil explorer, added 2.9 percent to 528,000 yen, while Japan Drilling Co., an offshore exploration contractor, increased 1.9 percent to 2,536 yen.

Copper rose to a four-month high in New York yesterday. The London Metal Exchange Index gained 2.4 percent, the biggest rise since Jan. 10. Crude oil for March delivery added 0.3 percent to $99.70 a barrel yesterday in New York, the highest settlement since Jan. 19.

“The whole world is moving toward monetary easing,” said Seiichiro Iwamoto, who helps oversee about $35 billion at Mizuho Asset Management Co. in Tokyo. “Europe and the U.S. are injecting a lot of liquidity, and that's boosting commodities.”

The Topix tumbled 19 percent last year amid concern U.S. growth is sputtering and Europe's debt crisis will damage the banking system, damping demand in two of Japan's biggest export markets. The decline has cut the price of shares on the index to 0.9 times book value. That compares with 2.2 times for the Standard & Poor's 500 Index in the U.S. and 1.4 times for the Europe Stoxx 600 Index.

--With assistance from Yoshiaki Nohara in Tokyo. Editors: Jim Powell, Drew Gibson.

Dollar Reaches Five-Week Low Versus Euro on Fed Rate Pledge; Aussie Climbs

By Mariko Ishikawa and Monami Yui - Jan 26, 2012 11:17 AM GMT+0400

The dollar fell to the weakest in more than a month against the euro after the Federal Reserve extended its pledge to keep interest rates low until late 2014.

Australia’s dollar climbed to a 12-week high as Asian stocks advanced and Russia said it may start purchasing the South Pacific nation’s currency. Demand for the 17-nation euro was limited before talks on a Greek debt swap resume. New Zealand’s dollar rose for a fifth day even after the nation’s central bank held its key interest rate at a record low.

“The Fed’s pledge for a prolonged easing of monetary policy boosted risk-on sentiment,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest bank by market value. “Dollar selling is likely to continue across the board.”

The dollar lost 0.2 percent to $1.3127 per euro as of 7:07 a.m. in London after earlier reaching $1.3134, the lowest since Dec. 21. Japan’s currency slid to 101.98 per euro, the weakest since Dec. 26, before rallying 0.1 percent to 101.80. The yen climbed 0.3 percent to 77.56 against the dollar from yesterday, when it reached 78.28, the weakest since Nov. 29.

The MSCI Asia Pacific Index (MXAP) of stocks rose 0.9 percent following a 0.9 percent advance in the Standard & Poor’s 500 Index yesterday.

Fed Pledge

Economic conditions will likely “warrant exceptionally low levels for the federal funds rate at least through late 2014,” the Federal Open Market Committee said in a statement released inWashington yesterday. The Fed had previously pledged to keep its rate target in place until mid-2013.

The central bank also lowered its forecast for economic growth this year to a range of 2.2 percent to 2.7 percent, down from a projection of 2.5 percent to 2.9 percent in November. It predicted an expansion next year of 2.8 percent to 3.2 percent, down from a previous projection of 3.0 percent to 3.5 percent.

U.S. gross domestic product increased at a 3 percent annual rate in the fourth quarter, according to the median forecast of economists in a Bloomberg News survey before the Commerce Department’s releases the data tomorrow. That compares with a 1.8 percent advance in the previous three-month period.

“The Fed was more dovish than the markets had thought, given that recent data have been suggesting the U.S. economy is recovering at a modest pace,” said Mizuho’s Suzuki.

The euro slid against 10 of its 16 major counterparts amid concern European leaders will struggle to reach an agreement on reducing Greece’s debt burden as a means to stem the region’s sovereign crisis. Charles Dallara and Jean Lemierre, negotiating on behalf of private creditors, return to Athens today after European finance ministers insisted bondholders take bigger losses on their Greek debt.

Greek Debt Swap

While the International Monetary Fund suggested that public holders of Greek bonds might also have to increase support, the European Central Bank sees this as potentially damaging to confidence in the institution, according to two people familiar with the Governing Council’s stance, who declined to be identified because the matter is confidential.

“The more the settlement of the debt-swap negotiations gets delayed, the bigger the losses Greece’s private bondholders will be asked to take,” said Makoto Noji, a Tokyo-based senior debt and currency strategist at SMBC Nikko Securities Inc., a unit of Japan’s second-biggest banking group by market value. “Investors can’t start buying the euro at full steam.”

Russian Reserves

The Australian dollar climbed for an eighth day against the yen and a second session versus its U.S. counterpart. Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said in Davos, Switzerland that his nation may start buying the Aussie as a reserve currency as soon as early February.

Australia’s dollar rose as much as 0.4 percent to $1.0643, the highest since Oct. 31, and reached 82.61 yen, the strongest since Nov. 1. New Zealand’s dollar climbed as much as 0.5 percent to 82.09 U.S. cents, also the most since Oct. 31, and added 0.1 percent to 63.60 yen.

Reserve Bank of New Zealand Governor Alan Bollard said today it is “prudent” for the central bank to keep interest rates at record low 2.5 percent.

“The RBNZ’s latest post-meeting statement was met with indifference,” Ray Attrill, a senior currency strategist at BNP Paribas SA in New York, wrote in a research note today. The so- called kiwi dollar is “free to fly again” with the passing of “event risk,” he said.

-- Editors: Rocky Swift, Ken McCallum

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

U.S. Stocks Drop After 3-Week Rally as Euro, Commodities Advance

By Stephen Kirkland and Rita Nazareth

Jan. 23 (Bloomberg) -- U.S. stocks fell, erasing early gains, as investors weighed developments in Europe’s efforts to tame its debt crisis and debated whether a three-week rally in equities was warranted. The euro approached its strongest level of 2012, while Treasuries fell and commodities advanced.

The S&P 500 fell 0.3 percent to 1,311.79 at 12:29 p.m. in New York after rallying as much as 0.5 percent. The Dow Jones Industrial Average erased gains after earlier rising above its highest closing level since May. The Stoxx Europe 600 Index added 0.5 percent and the euro appreciated 0.6 percent to $1.3012. The Greek two-year note yield dropped to 176 percent after surging to more than 200 percent. Oil added 1 percent and copper advanced 1.4 percent. Ten-year U.S. Treasury note yields increased three basis points to 2.06 percent.

U.S. equities turned lower after rallying in the first hour of trading amid optimism European finance ministers will make progress in debt-crisis discussions. Germany and France said talks between Greece and bondholders were making progress, while a government official in Berlin said Germany may be open to combining Europe’s two bailout mechanisms and boosting their funding limit.

“It’s been a brisk run in risk assets this year,” Stephen Wood, who helps oversee $137.6 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “The question is: would the degree of market movement be consistent with fundamentals? On the U.S. side, you have an improving economy. That is competing with the other side of the Atlantic, which is a source of volatility and uncertainty.”

Chart Levels

The S&P 500 turned lower today after reaching 1,322.28, a level close to a trendline drawn from the index’s all-time high in 2007 and its peak last year in April, as well as a “downtrend” connecting its May and July highs, according to Ari Wald, a New York-based technical strategist at Brown Brothers Harriman & Co.

The index’s 14-day relative strength index, which measures the degree that gains and losses outpace each other, has stayed above 65 since Jan. 17, matching the longest streak since February, according to Bloomberg data. Some technical analysts consider RSI readings above 70 a sign that stocks have risen too far, too fast.

“Overextended conditions leave the index vulnerable to short-term consolidation,” Wald said in a note today.

The S&P 500 has climbed 4.3 percent in 2012, the best start to a year since 1997, after companies from Goldman Sachs Group Inc. to Union Pacific Corp. and EBay Inc. topped analysts’ profit projections.

Procter & Gamble Co., Cisco Systems Inc. and McDonald’s Corp. lost at least 1.4 percent to lead the Dow’s decline today.

Barton Biggs, who increased bets on U.S. equities before the Standard & Poor’s 500 Index rallied last month, said he remains bullish even amid concerns over progress in solving Europe’s debt crisis.

Two Types of Terror

“I’m terrified I’m not long enough if we’re going to have a strong rally here, which we could,” he said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu today. Biggs said his net-long position in equities is 65 percent. At the same time, “I’m terrified I’m too long if the apocalypse is coming in Europe,” he said.

Minefinders Corp., operator of the Dolores gold and silver mine in Mexico, jumped 25 percent after Pan American Silver Corp. agreed to acquire the company for about C$1.5 billion.

European Stocks, Euro

Two shares gained for each that fell in the Stoxx 600. Outokumpu Oyj, Finland’s biggest producer of stainless steel, jumped 18 percent as it held discussions that may lead to a merger with a unit of ThyssenKrupp AG.

The euro advanced 0.5 percent against the yen. Negotiators for Greece and the Institute of International Finance broadly agreed on the terms of a debt swap over the weekend, FT Deutschland says, citing unidentified government officials.

IMF Managing Director Christine Lagarde said that efforts to secure additional IMF resources of $500 billion are “on the optimist side.” Lagarde made her comments during a panel discussion in Berlin today.

The yield on the 10-year Greek bond dropped 59 basis points to 33.57 percent. The German 10-year bund yield rose five basis points to 1.98 percent as the government sold 2.54 billion euros ($3.29 billion) of 12-month bills.

The 10-year U.S. Treasury note yield rose four basis points to 2.06 percent before the government auctions $56 billion of three- and six-month bills.

Oil rose to $99.41 a barrel. Dutch Foreign Minister Uri Rosenthal said EU foreign ministers adopted sanctions that will ban imports of crude and oil products from Iran as of July 1. The S&P GSCI gauge of 24 commodities increased 0.9 percent. Nickel, used to make stainless steel, climbed 1 percent in London, the third consecutive gain.

The MSCI Emerging Markets Index rose 0.5 percent, advancing for a fifth day, the longest run of gains in seven weeks. Markets including China, South Korea and Taiwan were shut today for the Lunar New Year holiday.

--With assistance from Lynn Thomasson in Hong Kong and Claudia Carpenter, Andrew Rummer, Daniel Tilles and Sarah Jones in London. Editors: Stephen Kirkland, Michael P. Regan

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; 

Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

Euro Advances to Three-Week High Against Dollar Before EU Talks

Allison Bennett and David Goodman, ©2012 Bloomberg News

Monday, January 23, 2012

Jan. 23 (Bloomberg) -- The euro strengthened to an almost three-week high against the dollar as French Finance Minister Francois Baroin said negotiations between Greece and its private creditors are making "tangible progress."

The 17-nation currency gained versus 13 of its 16 major counterparts tracked by Bloomberg as European Union finance ministers gather in Brussels to discuss a Greek debt swap, budget rules and a financial firewall to protect indebted nations. The Australian and New Zealand dollars gained as the implied volatility of major currencies reached the lowest in almost a year and commodities and equities rallied.

"The price action is putting the cart before the horse by assuming that since risky currencies and the euro are rallying that something is going to get done in Europe," said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. "There has been quite a sea-change in the past couple weeks in terms of market sentiment and risk appetite and those that were talking about the euro going to parity are eating their words."

The euro gained 0.8 percent to $1.3034 at 12:01 p.m. New York time after rising to $1.3053, the highest level since Jan. 4. The common currency advanced 0.6 percent to 100.26 yen, while the dollar was little changed at 76.92 yen.

Volatility Slows

Implied volatility of three-month options of Group of Seven currencies declined to 10.6 percent, the least since March 2011, when it dropped to lowest since August 2008, according to the JPMorgan G7 Volatility Index. The decline makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.

Australia's dollar gained 0.5 percent to $1.0534, and New Zealand's currency advanced 0.6 percent to 81.08 cents. Interest rates are 4.25 percent and 2.5 percent respectively, compared with near zero rates in the U.S. and Japan.

The dollar and yen fell against all their major counterparts excluding the Taiwanese dollar as stocks and commodities rallied. The Standard & Poor's 500 Index gained as much as 0.5 percent and the S&P GSCI index of 24 raw materials rose 0.7 percent.

The dollar has weakened 1.6 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen declined 0.1 percent, and the euro has slipped 1.7 percent.

Canada's dollar appreciated to within a cent of parity with the U.S. currency as leading economic indicators increased for a sixth month in December, according to Statistics Canada. The loonie gained 0.5 percent to C$1.0079 per U.S. dollar. It has not traded above parity since Nov. 1.

Euro Bets

Investors betting against the euro since the European Central Bank cut rates in November may be benefiting from the most profitable trade in the foreign-exchange market, according to data compiled by Bloomberg.

Borrowing in euros and investing in the currencies of Australia, Brazil, Mexico, South Africa and South Korea has returned 7.8 percent since the ECB cut its benchmark interest rate on Nov. 3 for the first time in more than two years, Bloomberg data shows. So-called carry trades funded with yen have lost 0.1 percent and gained 1.5 percent when financed with dollars.

Futures traders last week raised bets to a record that the euro will decline against the dollar. The difference between wagers that the shared currency will fall versus those that it will rise -- so-called net shorts -- surged to 160,030 in the week ended Jan. 17, data from the Commodity Futures Trading Commission showed on Jan. 20.

The pound fell 0.8 percent to 83.66 pence per euro after profit alerts increased by more than 70 percent in the final quarter of 2011 at U.K.-listed companies, the biggest jump since the first three months of 2001, according to Ernst & Young LLP.

Greek Talks

Bondholders negotiating a debt swap with Greece have made their "maximum" offer, leaving it to the EU and International Monetary Fund to decide whether to accept the deal, said Charles Dallara, managing director of the Washington-based Institute of International Finance, who's representing private creditors in the talks.

The parties were nearing an agreement under which old bonds would be swapped for new securities, with coupons averaging between 4 percent and 4.5 percent, according to a person with knowledge of the discussions three days ago. Germany and the IMF are now insisting on an agreement closer to 3 percent, the New York Times cited officials involved as saying.

The German government is considering proposals to run the temporary and permanent European rescue funds in parallel if needed, potentially creating a bigger firewall against the region's debt crisis, according to Steffen Seibert, the government's chief spokesman.

European Union leaders will discuss the proposals at a Jan. 30 summit in Brussels, he said.

Running the two funds simultaneously "has been suggested on many occasions in the past," said Chris Walker, a currency strategist at UBS AG in London. "It would effectively create a much bigger firewall if it happened but there are of course many problems; increased guarantees and potential German constitutional court challenges."

--With assistance from Paul Dobson and Anchalee Worrachate in London. Editors: Paul Cox, Dave Liedtka

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; 
David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Comments from euro zone finance ministers, officials

January 23, 2012 12:00 PM EST

Euro zone finance ministers and officials meet on Monday to discuss terms of a Greek debt restructuring as part of a second bailout package for Athens, as well as other issues in the euro zone debt crisis.

Following are comments ahead of their talks:


AUSTRIAN FINANCE MINISTER MARIA FEKTER ON GREEK DEBT TALKS:

"We will listing to the Greek finance minister to hear what models there are. It is important to have a long-term model so that Greece has time and it is important that the interest rates are low so that Greece can reduce its debt mountain.

"We know that the banks are not overly happy, but a crash is far more expensive than such a long-term plan.


ON FISCAL PACT:

"We support the German position of linking the fiscal pact tightly to the ESM (permanent bailout fund).

"We also want to have stronger controls. If one is disciplined, there is no issue of encroachment. You retain your freedom while respecting the rules."

EU ECONOMIC AND MONETARY AFFAIRS COMMISSIONER OLLI REHN ON GREEK DEBT TALKS ON BONDHOLDER LOSSES:

"The talks have been moving well (ahead) at the technical level and I am certain that we will take stock of the PSI talks concerning Greece today in the Eurogroup. And I am confident that we can conclude the negotiations on the PSI (private sector involvement) shortly - preferably in the course of this week."

SPANISH ECONOMY MINISTER LUIS DE GUINDOS ON SITUATION IN SPAIN:

"We are committed to fiscal austerity and economic reforms. We are facing a difficult, a complex environment, but in the days and weeks ahead the Spanish government will show its absolute commitment to austerity.

"It's a two-pronged approach: austerity on the one hand and economic growth on the other."

CYPRIOT FINANCE MINISTER CHARILAOS STAVRAKIS ON POSSIBILITY OF AN AGREEMENT THIS WEEK ON LOSSES FOR GREEK BONDHOLDERS:

"I am not so sure. Everything is open.

"You know the special interest (of the) Cypriot government with the exposure of Cypriot banks. Now we have to wait and see.

"We are here to make proposals. We cannot keep it open forever."

European stocks, euro rise on upbeat bond sales

(AFP) – 7 hours ago 

LONDON — European stock markets closed higher and the euro climbed against the dollar Thursday following positive government bond sales by France and Spain despite downgrades for the major eurozone economies.

Sentiment was also boosted by encouraging US economic data and International Monetary Fund plans to stock its coffers for crisis fighting.

In London, the FTSE 100 index of leading shares closed up 0.68 percent at 5,741.15 points. In Paris, the CAC-40 index jumped 1.96 percent to 3,328.94 points and in Frankfurt the DAX 30 rose 0.97 percent to 6,416.26 points.

Madrid jumped 2.17 percent and Milan gained 2.45 percent.

Italy was also hit Friday by a Standard and Poor's two-notch downgrade.

In Athens, the bourse gained 2.94 percent, having been up more than 4.0 percent earlier on growing optimism that the government will finally reach a crucial debt deal with private creditors.

"If the Greek situation is resolved in time, chances rise that the crisis will remain under control for longer, even without a decisive and more direct intervention" by the European Central Bank, Berenberg Bank senior economist Christian Schulz said in a research note.

Athens faces a mid-March deadline to obtain new financing if it is not to become the first developed country in 60 years to declare a debt default.

In New York, the Dow Jones Industrial Average was up 0.25 percent while the broad-based S&P 500 added 0.80 percent at around 1650 GMT.

Wall Street equities were "buoyed by some upbeat US economic and earnings news while continued success in debt auctions across the pond is also lending support to sentiment," Charles Schwab analysts said.

New claims for US unemployment benefits fell sharply last week to the lowest level in more than three years, official data showed, confirming recent signs of healing in the labour market.

Earnings news was also positive.

"The latest figures from ... Bank of America and Morgan Stanley were well-received, as was eBay's turn in the earnings limelight," said Andrea Kramer at Schaeffer's Investment Research.

The euro meanwhile rallied to $1.2925 from $1.2862 in New York late Wednesday after France and Spain both raised funds at much lower rates as investors seemed to largely discount Friday's Standard and Poor's eurozone ratings downgrades.

"Strong and healthy demand (for French and Spanish debt) demonstrated how undisturbed the markets were by the recent S&P downgrade that deprived France of its triple-A rating," Gekko Global Markets trader Anita Paluch told AFP.

"The biggest news ... is that the French and Spanish bond auctions attracted strong demand and yields fell, which is exactly what the EU wants to see," said Kathleen Brooks, an analyst at traders Forex.com.

The successful bond sales came a day after the IMF said it planned to add $500 billion to its war chest, a move understood to be aimed at stalling fallout from the eurozone crisis and preventing a global recession.

Meanwhile, it emerged that the IMF had given approval for talks on new rescue loans to Greece.

"After a waiting period of several weeks, the green light has been given for the country to submit to the IMF a request to begin procedures for the new programme," Greek Finance Minister Evangelos Venizelos told parliament.

 

Copyright © 2012 AFP. All rights reserved

EURO GOVT-Spanish yields rise as auction floods market

Thu Jan 19, 2012 12:42pm EST

* Spain sells larger-than-expected 6.6 bln euros of bonds
* Flood of issuance weighs on market, yields rise
* Greek uncertainty should limit losses for Bunds

By Kirsten Donovan and Ana Nicolaci da Costa

LONDON, Jan 19 (Reuters) - Spanish bond yields rose on Thursday as the market tried to digest a larger-than-expected debt auction which left the sovereign well ahead of its issuance schedule for the year.

Spain sold 6.6 billion euros of bonds against a target amount of 4.5 billion after selling double the intended amount at a sale last week.

With even the longer-dated 10-year paper on offer drawing solid demand, hopes were raised that the European Central Bank's longer-term liquidity provision was helping to ease funding pressures on peripheral issuers.

But Spanish yields rose in the secondary market as the market struggled to accommodate the large amount of new paper.
"The Spanish have been exceeding their auction limits and are more than 20 percent through their total expected issuance for this year, so as the market takes down the supply you would expect some degree perhaps of indigestion," Richard McGuire, rate strategist at Rabobank said.
Spain has now completed a fifth of its targeted 2012 funding.

"They made a mistake this morning and left the market long after the auction, the management of these recent auctions has been pretty poor," said one trader.

"They had better be confident they can hold these kind of bids from the domestics because the primary dealers are getting (hit)."

France also found solid demand at an auction of shorter-dated debt, the first since Standard & Poor's stripped the country of its triple-A rating.

The ECB's near half trillion euro injection of three-year funds has bolstered demand for shorter-dated euro zone debt, and analysts said it was positive to see the demand spreading to the longer-end of the Spanish curve.

"They look decent ... French auctions never disappoint. Especially (in) this period, with the extra liquidity around, it would be very surprising for French auctions not to have good bid-covers," Achilleas Georgolopoulos, strategist, Lloyds Bank said.

BUND APPETITE

Better sentiment towards lower-rated bonds helped underpin appetite for riskier European stocks at the expense of bonds.

The German Bund future saw a settlement close of 138.96, down 91 ticks on the day.

The losses were accentuated by a fall in the U.S. jobless claims and after solid demand at an Austrian debt sale.

Austria is set to raise 5 billion euros for its 10- and 50- year bonds, only days after it also lost its cherished triple-A rating from Standard & Poor's.

But analysts say there is fundamental support for safe-haven German debt with Greek debt talks, critical to avoid a disorderly default, dragging on..

"We still think that this is purely a liquidity related effect and that fundamentals will ultimately win the day and there are clear triggers for that, the Greek debt negotiations ... are a key pressure point in this regard," McGuire added.

Greece meets its private creditors for a second day after the talks hit an impasse last week. It is crucial an agreement is reached within days to pave the way for Athens to receive further aid in time to redeem a 14.5 billion euro bond in March.

Portuguese bonds have come under pressure since the country lost its last investment grade credit rating on Friday and with fears that any Greek deal could be used as a blueprint for Portugal despite officials saying Greece was a unique case.

The spread of 10-year Portuguese bonds over German Bunds touched a euro-era high of 1,300 basis points as yields rose 16 bps.

Euro Gains on Debt Auctions; Treasuries Fall, Stocks Fluctuate

By Michael P. Regan and Allison Bennett

Jan. 12 (Bloomberg) -- The euro rose as European Central Bank President Mario Draghi said he saw signs of stabilization in the region and yields decreased at debt auctions in Spain and Italy. U.S. stocks erased earlier losses, while Treasuries fell after a 30-year bond sale drew lower-than-average demand.

The euro added 1 percent to $1.2831 at 1:22 p.m. in New York and climbed versus 14 of 16 major peers. The Standard & Poor’s 500 Index fluctuated near a five-month high above 1,292 after slipping 0.5 percent earlier. Ten-year Treasury yields climbed two basis points to 1.93 percent. Copper and oil rose, while corn and wheat plunged on forecasts for larger stockpiles.

Spain sold 9.98 billion euros ($12.7 billion) of notes, compared with a target of as much as 5 billion euros, while the yield on Italy’s one-year bills fell to 2.735 percent. The auctions triggered optimism that Europe’s debt crisis was not worsening. The ECB’s Draghi said that while risks remain, the economy was showing signs of stabilization as the central bank kept its benchmark interest rate at 1 percent.

“Any good news for the euro zone could be a trigger for traders to cover their short positions,” said Mamoru Arai, foreign exchange manager at Mizuho Financial Group Inc. in New York. “The market focused on the fairly positive comments about the European economy from Draghi but I think they were well balanced. And there was the good auction from Spain.”

Euro Strengthens

The euro rebounded from near a 16-month low versus the dollar, also strengthening after industrial production in the euro area declined by less than economists forecast. Spanish two-year note yields fell below 3 percent for the first time since April 2011 and the extra yield investors demand to hold Italian 10-year bonds versus benchmark German bunds tightened 37 basis points.

“According to some recent survey indicators, there are tentative signs of stabilization of economic activity at low levels,” Draghi said at a press conference in Frankfurt. “Substantial downside risks to the economic outlook for the euro area continue to exist in an environment of high uncertainty.”

Among U.S. stocks, Chevron Corp. slid 2.2 percent to lead energy shares to the biggest decline among 10 groups. Chevron said fourth-quarter profit was “significantly below” the previous period’s after maintenance at a California refinery and the sale of a U.K. fuel plant hurt results.

Financial shares in the S&P 500 lost 0.6 percent as Bank of America Corp. and JPMorgan Chase & Co. retreated. The group of 81 banks, insurers and investment firms has surged 22 percent from a two-year low on Oct. 3 amid increasing optimism on the economy. The S&P 500 has rallied 17 percent over the same period.

Economic Data

Retailers slipped 0.3 percent as a group, with Sears Holdings Corp. dropping 3.5 percent to lead declines. U.S. retail sales rose 0.1 percent in December, less than the 0.3 percent increase predicted in a Bloomberg survey of economists. Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, compared with a median estimate of 375,000 in a Bloomberg survey.

European financial shares advanced. Royal Bank of Scotland Group Plc jumped 5.6 percent as Britain’s biggest government- owned lender said it will cut 4,800 jobs. ING Groep NV, the largest Dutch financial-services company, advanced 3.7 percent after saying it will explore other options for the planned disposal of its Asian insurance and investment-management businesses.

European Retailers Plunge

A gauge of European retailers had the biggest drop on a closing basis since October 2008. Tesco Plc plummeted 16 percent, the most since at least 1988, after the U.K.’s largest supermarket chain reported Christmas sales that missed analyst estimates and reined back profit expectations. Delhaize Group SA, the owner of the U.S. Food Lion supermarkets, sank 11 percent in Brussels after also reporting sales that trailed projections.

The MSCI Emerging Markets Index gained 0.7 percent, headed for the highest close since Dec. 7. Benchmark gauges in Poland, Turkey and Hungary climbed at least 1.5 percent. The BSE India Sensitive Index fell 0.9 percent as Infosys Ltd. cut its full- year forecast for sales in dollar terms.

The Hungarian forint jumped 1.9 percent against the U.S. dollar after the government sold more bonds than planned and financing costs fell at an auction today.

Spanish Yields

The yield on Spain’s two-year note dropped for the fourth straight day, sliding 13 basis points to 2.96 percent. Italy’s 10-year yield sank 35 basis points to 6.63 percent. The yield on the French 10-year bond dropped 12 basis points to 3.04 percent, narrowing the difference in yield with bunds by 14 basis points to 120 basis points.

The yield on the existing 30-year U.S. Treasury bond increased two basis points to 2.98 percent.

The $13 billion in securities in today’s auction were sold at a yield of 2.985 percent, compared with the record low of 2.925 percent reached at the December sale and lower than the average forecast of 2.953 percent in a Bloomberg survey today of 21 primary dealers. The offering’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.6, versus an average of 2.7 in the previous 10 auctions.

Copper jumped 2.8 percent to lead gains among 12 of 24 commodities in the S&P GSCI index, which rose 0.2 percent. China, the biggest buyer of the metal, reported inflation slowed to a 15-month low in December. Natural gas dropped as much as 3.7 percent to $2.67 per million British thermal units, the lowest price since September 2009, amid forecasts for milder weather.

Corn, soybean and wheat prices plunged the most in three months after the U.S. forecast bigger inventories than analysts expected, easing concern that shortages will inflate prices for food and biofuels. Corn tumbled the 40-cent limit in Chicago, soybeans plunged 3.1 percent and wheat slid 6.5 percent.

--With assistance from Stephen Kirkland in London, Lynn Thomasson in Hong Kong and Charlie Zuza, Rita Nazareth and Susanne Walker in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; 

Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net