Spain, France Bond Sales Take On EU Crisis

Spain and France auction 8.25 billion euros ($11 billion) of bonds today as European efforts to strengthen the region’s firewalls against contagion failed to rein in surging borrowing costs.

Spain is selling as much as 3.75 billion euros of notes as the extra yield on its 10-year bonds compared with benchmark German bunds was at 396 basis points today. France, rated AAA, is auctioning as much as 4.5 billion euros of debt as its 10- year securities yielded 112 basis points more than comparable German debt.

“Judging by where yields are, it’s not going to be pleasant,” said Elisabeth Afseth, a fixed-income analyst with Evolution Securities Ltd. in London, referring to the Spanish auction. “If there are problems getting the full amount away or if yields are pressed to substantially higher levels, it will be bad news and will further intensify the crisis.”

The auctions will test investor confidence after the Federal Reserve, the European Central Bank and four other central banks in a globally coordinated effort yesterday cut the cost of emergency dollar funding for European banks. The central banks acted after financing costs rose following euro-area leaders’ failure to bolster the region’s rescue fund as planned.

As the crisis that began in Greece two years ago moves to the euro-area’s core, leaders are struggling to convince investors they can contain the risk and assure the euro’s survival.
Spanish Cancelation

Italy, with the second-largest public debt burden in the euro region after Greece, was forced to pay almost 8 percent to sell three-year debt on Nov. 29, the highest since 1996. The same day, Belgium paid the most in three years to sell six-month notes.

France is selling bonds due in October 2017, October 2021, April 2026, and April 2041. Spain aims to sell notes maturing in April 2015, January 2016 and January 2017.

Spain changed the securities it planned to sell at the auction, opting for longer-dated notes that already trade instead of a new benchmark three-year bond, citing market conditions. Spain’s short-term borrowing costs are approaching the levels of longer-term yields as the gap between two-year and 10-year rates narrowed last week to the least in three years.

The difference between yields for three-year and five-year notes narrowed to 10 basis points, or 0.10 percentage point, on Nov. 23, and was 35 basis points as of 7:47 a.m. London time. That’s half of where it was on Oct. 7. Greek and Portuguese short-term rates rose above long-term yields just before they sought bailouts.
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