The rather successful auction in Spain this morning is giving euro traders something to cheer about after the weak showing by its neighbour, Portugal, earlier this week.
Bid-to-cover up in Spanish auction
The Spanish government auction off EUR 3.22 billion in 10-year bonds at an average yield of 5.162 percent with a bid-to-cover of 1.81 (vs. 1.54 at the latest similar auction), which has put a smile on the faces of euro traders who quickly sent the EURUSD through the 1.40, touching 1.4050 at one point, before giving a bit back. The 1.40 holds for now though. Spain had similar success with a 30-year bond which secured its government EUR 911 million from EUR 1.88 billion tendered at an average yield of 5.875 percent and a bid-to-cover of 2.06. The reaction has been that this indicates that the markets have faith in the new expanded European Financial Stability Fund (EFSF), though we would not go that far just yet (and mind you, the auctions did not draw maximum interest from investors). Elsewhere in Europe this is hurting the CHF, which has given back nearly half of yesterday's gains against the EUR.
Last weekend's agreement amongst EU leaders to increase the scope of the EFSF to EUR 440 billion (it was also nominally at that size before, but several restrictions and buffers were prohibiting the fund from lending all of the EUR 440 billion) is seen as the cause of the appetite for Spanish government bonds, with yields only down slightly from the last auction. So while yields at least did not go up like in the case of Portugal they did not make a forceful move lower either. It is simply too early to celebrate in our view, though Spain has taken some steps to reduce its massive public deficit.
The Spanish government auction off EUR 3.22 billion in 10-year bonds at an average yield of 5.162 percent with a bid-to-cover of 1.81 (vs. 1.54 at the latest similar auction), which has put a smile on the faces of euro traders who quickly sent the EURUSD through the 1.40, touching 1.4050 at one point, before giving a bit back. The 1.40 holds for now though. Spain had similar success with a 30-year bond which secured its government EUR 911 million from EUR 1.88 billion tendered at an average yield of 5.875 percent and a bid-to-cover of 2.06. The reaction has been that this indicates that the markets have faith in the new expanded European Financial Stability Fund (EFSF), though we would not go that far just yet (and mind you, the auctions did not draw maximum interest from investors). Elsewhere in Europe this is hurting the CHF, which has given back nearly half of yesterday's gains against the EUR.
Last weekend's agreement amongst EU leaders to increase the scope of the EFSF to EUR 440 billion (it was also nominally at that size before, but several restrictions and buffers were prohibiting the fund from lending all of the EUR 440 billion) is seen as the cause of the appetite for Spanish government bonds, with yields only down slightly from the last auction. So while yields at least did not go up like in the case of Portugal they did not make a forceful move lower either. It is simply too early to celebrate in our view, though Spain has taken some steps to reduce its massive public deficit.
EURUSD intraday chart (last four days)
Source: Bloomberg.
Stay tuned for a big bout of U.S. data in fifteen minutes with the Consumer Price Index (CPI) the main attraction.
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