April 20, 2012 / 8:51 AM / 6 years ago

EURO GOVT-Spanish yields pierce 6 pct as nerves jangle

* Spanish debt insurance costs near record high

* German 10-year yields hit record low

* French bond yields under pressure before presidential vote

By Emelia Sithole-Matarise

LONDON, April 20 (Reuters) - Spanish 10-year yields broke back above 6 percent on Friday, driving German Bund prices to record highs, as investors worried about Madrid’s ability to deal with its fiscal problems and a potential spread of the euro zone debt crisis.

The cost of insuring Spanish against default also rose close to a record, with pressure on Spain unrelenting after a debt auction on Thursday fell short of market expectations. A sustained break of 6 percent in 10-year yields could see borrowing costs accelerate to unaffordable levels.

The latest flare-up in the euro zone debt crisis threatened to spread to Italy, where 10-year yields were last up 8 basis points at 5.70 percent. France’s presidential elections on Sunday were adding to market jitters, setting up a challenging environment for Italian debt sales next week.

“You have this longer-running story in Spain and the elections this weekend in France. It is very much a risk-off tone. Fears of contagion are showing up in Italy,” a trader said.

French bonds sold off in an increasingly nervous market in the last trading session before Sunday’s first round of the presidential election. Ten-year yields were up 3 bps at 3.13 percent, with French five-year credit default swaps up 10 bps at 210, their highest since January.

Financial markets are concerned that the expected eventual winner, Socialist Francois Hollande, may be les stringent with g o vernment finances than current President Nicolas Sarkozy.

The deteriorating sentiment in peripheral bonds supported demand for safe havens, hoisting German Bund futures to a record high of 140.86. Bunds later retreated as data showed German business sentiment improved in April.

German 10-year yields were last at 1.62 percent , off a 1.59 percent all time low plumbed earlier.

“The context of the fragility on the economic side,...the political situation with the election in France means risky assets are under pressure,” BNP Paribas strategist Patrick Jacq said.

“Flight-to-quality trades remain so I would not be surprised to see slightly lower yields across the board in Germany as well as widening spreads.”

Other German yields are also near record lows, according to Reuters data, with German 30-year Bunds yielding 2.38 percent. The al-time low is 2.337 percent, hit on Jan. 13.

Germany will test investor appetite for its ultra-long bonds next week when it auctions 3 billion euro of 32-year paper.

German inflation stands at 2.1 percent.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below