Weekly Bond Yield developments in the Euro Area (W9.2012): Spanish and Italian bond auctions, LTRO, Greece and Fiscal Compact

Sovereign debt market developments this week were marked by 4 main events:

We can see that the largest reaction in all EU countries was on Thrusday. In all cases, whether the markets had been growing or decreasing, the result was a stabilisation of the yields in the last two days of the week.

  • In Portugal, the positive review by the Troika pushed short run rates down, while the final agreement between the IIF and Greece opened the door to PSI everywhere, particularly in Portugal and Ireland.
  • Italian and Spanish yields fell as the result of two good debt auctions, on Tuesday and Thursday, respectively
  • France and Belgian yields fell probably due to and in anticipation of a good auction of french debt on Thursday as well as to mild inflation and a rebound of economic expectations.
  • Finally German yields behaved counter cyclically to their core neighbours. They increased with the LTRO auction and fell with the PSI. This might be due the fact that any monetary expansion is implicitly guaranteed by the Bundesbank, which itself is guaranteed by the German Finance Ministry. Moreover, the PSI could imply a fall in future expected expenditure, thus driving yields down.

Here’s a chronology of all the events:

Monday – February 27, 2012:

Tuesday – February 28, 2012:

Wednesday – February 29, 2012:

Euro area annual inflation down to 2.6%

Thursday – March 1, 2012:

Friday – March 2, 2012:

I’m sure many more interesting things happened. For complementary comments on financial market developments you might be interested in reading the Keystone Speculator blog. You might also want to pay a visit to the EU Blogging Portal’s “The Week in Bloggingportal” as well as the blogroll itself.


Previous weeks:

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