By Stephen Kirkland - Dec 1, 2011 9:31 PM GMT+0700
Dec. 1 (Bloomberg) -- David Riley, head of global sovereign ratings at Fitch Ratings Ltd., discusses the outlook for French bonds, the U.S. economy and efforts to resolve the euro-zone crisis. He talks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Dec. 1 (Bloomberg) -- Mauro Guillen, a professor at the Wharton School of the University of Pennsylvania, talks about the European debt crisis. Six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis. Guillen speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Spanish and French bonds rallied and the euro climbed for a second day as successful debt auctions eased concern about Europe’s sovereign crisis. U.S. stocks fell following yesterday’s rally as jobless claims unexpectedly rose.
The yield on France’s 10-year note dropped as much as 27 basis points, the most since 1991, and traded 13 basis points lower at 3.26 percent at 9:30 a.m. in New York. Spain’s five- year yield tumbled 34 basis points to 5.52 percent. The euro appreciated 0.3 percent against the dollar. The Standard & Poor’s 500 slipped 0.2 percent following the stock gauge’s 4.3 percent jump yesterday.
French borrowing costs declined in its auction of 10-year bonds and Spain sold 3.75 billion euros ($5.1 billion) of debt, the maximum amount planned. European Central Bank President Mario Draghi said the bank’s program of buying government bonds “can only be limited,” a day after six central banks made additional funds available to ease strains from the crisis and the People’s Bank of China cut banks’ reserve requirements for the first time since 2008.
“The French and Spanish bond auctions were well received and priced,” Matthias Fankhauser, who helps oversee the equivalent of $100 billion in assets at Clariden Leu in Zurich, said in an interview. “Until now, we just had disasters on that front. Some investors feel it would be a good chance to jump into these high yields.”
Lower Costs
The gain in French 10-year bonds narrowed the yield gap with benchmark German bunds to as little as 84 basis points, the least since Oct. 13. The Spanish-German spread approached a one- month low while the Italian spread was the least in two weeks. France sold 1.57 billion euros of 10-year debt at an average yield of 3.18 percent, down from 3.22 percent at the last auction on Nov. 3. The yield on Spain’s five-year bonds was 5.544 percent, compared with 4.848 percent when notes with a similar maturity were auctioned on Nov. 3.
“Sovereign debt will continue to be the focus for the entire market,” Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London, said in a report. “The coordinated move was welcomed by the market, but the fact that central banks saw the need for such measures confirms how serious the bank funding situation is.”
The cost of insuring against default on sovereign debt fell for a third day with the Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments dropping three basis points to 336.
Jobless Claims
The S&P 500 yesterday capped its steepest three-day rally since March 2009. The index retreated today after jobless claims climbed to 402,000 in the week ended Nov. 26 that included the Thanksgiving holiday, Labor Department figures showed. The median forecast of 43 economists in a Bloomberg News survey called for a drop to 390,000. Labor Department data tomorrow is forecast to show a 125,000 increase in jobs last month and an unemployment rate stuck at 9 percent, according to the median economist forecasts.
A report at 10 a.m. New York time today will show that manufacturing in the world’s largest economy expanded in November at a faster pace than in October, according to a Bloomberg News survey of economists. Other figures today may show construction spending increased in October for a third month. The yield on 10-year Treasuries rose four basis points to 2.11 percent after jumping eight basis points yesterday.
The euro gained 0.4 percent versus the yen. The Dollar Index (DXY), which tracks the greenback against the currencies of six trading partners, fell 0.2 percent for a fourth consecutive decline. The Australian currency dropped versus all 16 major peers after building approvals dropped in October and consumer spending slowed.
Industrial metals led commodities lower after Chinese manufacturing contracted. Zinc, nickel and copper retreated at least 1 percent. Oil declined 0.3 percent to $100.06 a barrel.
The MSCI Emerging Markets Index (MXEF) rose 3.2 percent, extending this week’s gain to 9.2 percent, the biggest four-day rally since 2009. The Hang Seng China Enterprises Index jumped 8.1 percent, the most since 2008, after the Chinese government cut the reserve-ratio requirement for lenders. Benchmark indexes in India, South Korea and Taiwan advanced more than 2 percent.
To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net
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