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).