Expectations that Spain will request to participate in the ECB’s new Outright Monetary Transactions (OMT) bond buying program boost demand for Spanish bonds.
Spain held a hugely successful bond auction on Thursday (NYSEARCA:EWP). Tuesday’s decision by Moody’s Investors Service to maintain the “investment grade” (Baa3) rating on Spanish government bonds increased expectations that Spain would participate in the European Central Bank’s new Outright Monetary Transactions (OMT) bond-buying program. As a result, there was a surge in demand for Spain’s bonds. At Thursday’s auction, the nation’s Treasury sold €4.61 billion in debt at a reduced cost (beating a €4.5 billion target) as the increased demand brought yields down. €1.51 billion in 10-year bonds were sold at an average yield of 5.46 percent, compared with the 5.66 percent rate obtained at the September 20 auction. The nation’s Treasury sold €1.46 billion in five-year bonds at an average yield of 3.98 percent, compared with 4.60 percent at the last auction. €1.64 billion in three-year bonds were sold at an average yield of 3.23 percent, compared with 3.68 percent at the previous auction.
The Bank of Spain reported on Thursday that the amount of “troubled loans” in the nation’s banking system increased by €5.3 billion in August to reach a record high of €179 billion. The amount of troubled loans represents 10.51 percent of the total outstanding loans. Nevertheless, reports indicate that this data validates the metrics used for the stress-testing of Spanish banks.
Spain’s ten-year bond yield dropped to 5.47 percent on Thursday from Wednesday’s closing level of 5.53 percent. Spain’s two-year bond yield sank as low as 2.73 percent on Thursday from Wednesday’s closing level of 2.78 percent (NYSEARCA:EWP).
Italy’s ten-year bond yield rose to 4.85 percent on Thursday from Wednesday’s closing level of 4.83 percent (NYSEARCA:EWI).
Greece experienced another wave of violent protests against the nation’s economic austerity measures on Thursday (NYSEARCA:GREK).
Britain’s Office for National Statistics reported that the nation’s retail sales increased surprisingly during September. An interesting aspect to this report is that it distinguishes between the amount of goods bought in the retail sector as opposed to the amount spent in the retail sector. On a monthly basis, the amount of goods bought in the retail sector increased by 0.6 percent in September. The amount spent in September was estimated to have increased by 1.1 percent. On a year-over-year basis, 2012 the amount of goods bought in the retail sector was estimated to have increased by 2.5 percent and the amount spent in the retail sector was estimated to have increased by 3.2 per cent (NYSEARCA:EWU).
The Euro STOXX 50 Index finished Thursday’s trading session with a 0.17 percent advance to 2,574 (NYSEARCA:VGK). The FTSE 100 Index rose 0.10 percent to 5,917 (NYSEARCA:EWU). The German DAX Index climbed 0.58 percent to 7,437 (NYSEARCA:EWG). France’s CAC 40 Index advanced 0.22 percent to 3,535 (NYSEARCA:EWQ). Spain’s IBEX 35 Index fell 0.34 percent to 8,100 (NYSEARCA:EWP). Italy’s FTSE MIB Index declined 0.30 percent to 16,185 (NYSEARCA:EWI).
As of 12:15 EDT, the euro declined 0.08 percent against the dollar, trading at $1.3109 (NYSEARCA:FXE).
On London’s ICE Futures Europe Exchange, November futures for Brent crude oil declined by 95 cents (0.84%) to $112.27/bbl. (NYSEARCA:USO).
In China, stocks advanced following a report by the National Bureau of Statistics that the nation’s Gross Domestic Product increased by 7.4 percent during the third quarter of 2012, compared with the third quarter of 2011. The result was consistent with expectations. The Chinese government is targeting GDP growth of 7.5 percent for 2012 and economists expect the nation to beat that number by 20 basis points. The Shanghai Composite Index jumped 1.24 percent to 2,131 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index climbed 0.48 percent to 21,518 (NYSEARCA:EWH).
In Japan, stocks had another big day as the euro reached a five-month high against the yen and the dollar reached a two-month high against the yen (NYSEARCA:FXY). A weakened yen results in more competitively-priced Japanese exports in foreign markets. The Nikkei 225 Stock Average skyrocketed by exactly two percent to reach 8,982 (NYSEARCA:EWJ).
American stock index futures were in the red ahead of Thursday’s opening bell, following a disappointing report from the Department of Labor on initial unemployment claims. The December 12 Dow Jones Industrials future declined 0.14 percent to 13,470 as of 9:15 EDT. The December 12 S&P 500 future fell 0.35 percent to 1,452 (NYSEARCA:SPY). The December 12 Nasdaq 100 future dropped 0.46 percent to 2,757.
Bottom line: Expectations that Spain will participate in the European Central Bank’s new OMT bond-buying program drove down yields at a successful bond auction on Thursday, although the nation’s IBEX stock index took a slight dip while other European stock indices advanced.