Monday, November 14, 2011

Europe: Italian bond auction, Merkel calls for "New Europe"

by Bill McBride on 11/14/2011 08:44:00 AM

From the NY Times: France Keeps a Watchful Eye on Turmoil in Italy

While Italy has replaced Greece as the focus of anxiety amid Europe’s worsening debt crisis, investors are increasingly concerned about the outlook for France, whose banks are among the world’s biggest and are closely linked with their counterparts in the United States.

One crucial gauge of investor sentiment, the difference between what France pays to borrow versus what Germany pays, has doubled since the beginning of October ...
From the WSJ: Italy Passes Bond Test — At a Cost
Italy cleared its first hurdle since economist Mario Monti agreed to form a caretaker government to force through tough fiscal reforms, comfortably selling €3 billion of short-dated bonds Monday ... The five-year bonds were sold at an average yield of 6.29%, up from 5.32% at the last tap in October, the Bank of Italy said. That was the most Italy had to pay for five-year funds at an auction during the euro era, but the yields were sharply below the peaks of 7.73% seen last week when the country's political crisis escalated.

The bonds got bids for 1.47 times the amount on offer, up from 1.34 times at the previous auction.
From the Financial Times: Eurozone crisis: live blog
[German chancellor Angela Merkel] spelt out her determination to use the crisis to forge closer EU integration in the long-term, with “political union” as the ultimate goal.

“It is time for a breakthrough to a new Europe,” she declared. “That means to build Europe in such a way that the euro has a future.”

It meant an end to eurozone governments financing their spending with debt – at the expense of future generations, she said. EU treaty change would be needed to embed budget discipline in the fundamental rules, including automatic sanctions for those who exceeded the limits on their debt and budget deficits.
From the Athens News: Samaras will not support new measures
The New Democracy leader Antonis Samaras said on Monday that his party would not vote for any new austerity measures and said the mix of policies demanded by international lenders should be changed.

"We will not vote for any new measures," Samaras told a meeting of his own MPs.

He added that he would not sign any letter pledging a commitment to austerity measures, as has been demanded by EU Economic and Monetary Affairs Commissioner Olli Rehn, and that a verbal pledge should be sufficient.
Without his support, Greece will probably not receive additional aid.

Below is a table for several European bond yields (links to Bloomberg).

The Italian 10 year bond yield is up to 6.6%.

The Spanish 10 year bond yield has increased to 6.0%. The Spanish 2 year yield is up to 4.8%.

The French 10 year bond yield is at 3.4%.

Greece2 Year5 Year10 Year
Portugal2 Year5 Year10 Year
Ireland2 Year5 Year10 Year
Spain2 Year5 Year10 Year
Italy2 Year5 Year10 Year
Belgium2 Year5 Year10 Year
France2 Year5 Year10 Year
Germany2 Year5 Year10 Year