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Thursday, January 5, 2012

Europe bond auctions crucial test for euro crisis

Jan05, 2012,

Lackluster sale of German government debt offers little relief

By William L. Watts, MarketWatch

FRANKFURT (MarketWatch) — A less-than-thrilling uptake of German government debt on Wednesday put a drag on the euro, kicking off a major theme for the shared currency and other financial markets as Europe’s debt crisis drags into 2012.

Germany sold 4.1 billion euros ($5.3 billion) of 10-year government bonds. The auction, which had aimed to sell up to €5 billion euros of supply, attracted bids totaling €5.3 billion. The Bundesbank, as is standard practice, retained around €900 million of bonds on behalf of Germany’s public debt agency.

“Although today’s auction was an improvement ... it nevertheless highlighted the sense of caution that permeates the European sovereign debt markets as the region faces a massive wave of refinancing over the next few months amid continuing turmoil in its peripheral economies,” said Boris Schlossberg, director of currency research at GFT.

Bids exceeded supply 1.3 times. The yield declined from an already low 1.98% in a November auction to 1.93%.

Technically, November’s auction had been under-subscribed — an outcome that further rattled already panicked European markets as investors feared the debt crisis was beginning to take a toll on the currency’s sturdiest country.

The sale opens a heavy round of funding by European sovereigns in the first quarter, including sales by Spain, the euro-zone’s fourth-largest economy, and Italy, its third largest.

Analysts at RBC Capital Markets last month estimated a total of €220 billion to €230 billion of European government bond supply to be issued in the first quarter alone.

France, which faces worries over the standing of its triple-A rating, is set to issue government bonds on Thursday, while Spain and Italy will tap the market for the first time in 2012 next week.
Read complete article at MarketWatch

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