Spanish Sovereign

Spain has taken aim at the long end for a debt auction which will take place next week. Expectations of ECB intervention are likely to provide enough buoyancy to get the auctions through despite the hair-raising yields which Spanish government bonds reached earlier this week.

Spain sold over €7bn of bills on Tuesday between three and seven months in maturity while its 10 year yields moved north of 7.5%. Meanwhile, Moody’s shifted the outlook on Germany’s triple-A rating to negative.

Spanish bond yields circled perilously high on Monday. The 10 year reached highs past 7.5% leading to fears that a new — and more severe — stage in Europe’s sovereign debt crisis has been reached.

Spain’s government bond yields spiralled north of 7% on Friday. EU agreement on a bail-out for the troubled sovereign’s banking system has failed to convince investors that it is enough to set Spain on the path to recovery.

Spanish bond yields have leapt up on Thursday after a difficult auction of short to medium term debt. The auction allowed Europe’s peripheral sovereign debt crisis to raise its ugly head in a week where other sovereign credits have been issuing at low and even negative yields.

The European Financial Stability Facility (EFSF)mandated three banks to run a much anticipated five year benchmark, following a request for proposals a week ago for €3bn of funding. The mandate comes on a day when Spanish 10 year yields sat north of 7% and Eurozone finance ministers met in Brussels to discuss the latest developments in the sovereign debt crisis.

Europe’s €100bn scheme for a bail-out of Spanish banks buoyed market sentiment for Monday’s open, but senior bankers are already questioning whether the detail of the scheme will reveal a flawed plan to stave off a full Spanish sovereign rescue package.

Spanish government bonds had widened 10-15bp across the curve on Friday afternoon, amid speculation that the sovereign will seek assistance for its banking sector from the European Union at the weekend. Meanwhile the European Investment Bank was the only issuer to provide primary supply with a long-dated tap.

Standard & Poor’s placed 15 eurozone sovereigns on CreditWatch with negative implications on Monday. Six of those countries, including Austria, Germany and the Netherlands, are rated triple-A.

The positive tone to the European government bond market this week could be short lived if Europe’s leaders fail to tackle the continent’s fiscal problems at next week’s summit, warned bankers.

Belgium managed to auction €2bn of new paper on Monday morning despite a credit rating downgrade on Friday night. Some of Europe’s worst hit sovereign markets saw yields and spreads against Germany tighten on hopes that the IMF was building a rescue package for Italy and Spain.

Belgium managed to auction €2bn of new paper on Monday morning despite a downgrade on Friday night. Some of Europe’s worst hit sovereign markets saw yields and spreads against Germany tighten on hopes that the IMF was building a rescue package for Italy and Spain.