ECB president Jean-Claude Trichet confirmed on Thursday that the European Central Bank would continue to buy government bonds of Eurozone countries. The ECB already bought government bonds of Eurozone countries worth 67 billion Euros. He did not offer any details as per BBC news.
Trichet said the ECB would continue to support troubled banks in Eurozone area. After Trichet’s announcement, the Euro rose to $1.3145 from $1.3059 on Thursday. ECB decided to maintain bank rate at 1%, as expected.
On Thursday (December 2), Spain government carried a bond auction to raise 2.47 billion Euros. Spain had to offer increased yield on its 3-year bonds, 3.7% instead of previous rate of 2.5% in October. Yesterday, Portugal also increased its yield on 1-year bonds from 4.8% to 5.3%. Markets are still nervous on public finances of Portugal and Spain.
Elsewhere, official figures confirmed Q3 growth rate of 0.4% for Eurozone, a slow growth compared with Q2 growth rate of 1%.
Article first published as European Debt Crisis Deepens, Spreads to More Countries on Blogcritics.
Ireland bailout worth 85 billion Euros could not convince the markets that the crisis would not spread to other indebted Eurozone countries. On Tuesday, debt costs of Portugal, Spain and Belgium have touched life time high levels in euro’s 12-year history. Late on Tuesday ratings agency placed Portugal on credit watch over its huge debts, signalling the next country to ask for joint aid from the EU and IMF would be Portugal as per BBC News.
Portugal’s central bank warned about the risks being faced by its banks. Failure of the Portugal government in consolidating public finances may lead to Portugal banks to face intolerable risks, the central bank warns. France already came forward saying it will support to help Portugal and Spain if such a need arises. Financial officials in France and Germany accused investors for acting irrationally on the threat of financial contagion.
The yield on Spain’s 10-year bonds reached to 5.7% on Tuesday, a record difference of 3.05% compared with Germany’s 10-year bond. Bond spread for Italy’s 10-year bond was at 2.1 percent over Germany’s bonds and Irish bond yield stood at 9.53% while Portuguese bond yield stood at 7.05% for 10-year bonds. However, the yields for governments bonds of these countries are reportedly lowered on Wednesday on speculation that the European Central Bank would take extra measures to save Euro from falling, Reuters reported.
Irish bailout, still not known how much is planned, failed to alley market worries as debt costs for Ireland, Spain and Portugal continued at high levels. However, most of the European share indices along with that of the US were up, with positive news from the US data.
Jobless claims in the US came down slightly comparing with the previous week. Yesterday, the US revised up its third quarter growth rate from 2% to 2.5%.
The yield on Irish government’s 10 year bond was 8.92%, a record level reached before the bailout talks began. Though Irish government is not going for debt sale as it is fully funded up to the first half of next year with EDB funding, it is still a matter to worry. Because, it denotes that the markets are losing confidence on Ireland’s capacity of repayment of its debt.
The yield on 10 year Portuguese bond was 7.8%, which means the bond spread relative to the German bund was 4.8%. The Spanish-German 10 year bond spread recorded at 2.6% a life time high for Spain.
Bloomberg | Jul 20, 2010
Spain, Ireland and Greece sold almost 10 billion euros ($13 billion) of debt, with demand rising for shorter-dated securities, on optimism the European Union’s aid programs will contain the region’s fiscal crisis. Hungary raised less than planned at a sale of three-month bills, triggering a decline in the forint. Greece, which activated an EU-led bailout package in May to avoid default, auctioned 13-week bills, with investors bidding for 3.85 times the amount on offer, compared with a bid-to-cover ratio of 3.64 times at a sale of 26-week securities a week ago. Spain and Ireland also sold debt.
“Overall funding pressure is losing steam,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “We expect the peripheral markets to enjoy even more potential outperformance against the core. Obviously we still have this event risk looming with the banks’ stress tests.” Concern that Europe’s high-deficit countries wouldn’t be able to meet their financing needs pushed yield premiums to euro-era records and led the EU to design a 110 billion-euro bailout for Greece and a broader 750 billion-euro backstop for the region. The debt crisis prompted governments across Europe to impose additional austerity measures to convince investors they were serious about taming their deficits.