Despite complaints about how “weak” demand for Spanish and Italian debt pushed borrowing costs up in this morning’s bond auctions, there are still encouraging signs behind the headlines.
Spain and Italy sold a total of $14 billion in three- and six-month paper today, drawing decent but not spectacular demand from investors who are demanding higher yields than they have since the 2008 credit crunch.
Yields on the notes were up between 28 and 74 basis points, while the ratios of bids to the amount being sold narrowed, compared with a month earlier.
Traders are grousing that the sale reflected how relief over the latest developments in the euro zone is already fading.
It is true that outside of Greece, the future of the rest of the euro zone’s troubled borrowers remains uncertain.
With the European Central Bank raising interest rates, it is only natural that bond yields are rising too. We saw this writing on the wall months ago.
It is certainly interesting that despite how “bad” today’s auctions supposedly were, the cost of insuring Spanish and Italian debt is actually a bit lower today.
Default insurance on Spanish bonds got 11 basis points less expensive after the auctions and now costs 3.24% of the insured principal.
Insurance on Italian bonds eased 17 basis points to 2.66% of principal.
Relief would let battered Italian and Spanish stocks — as embodied by EWI and EWP — recover:
Over in Ireland, the cost of insuring government bonds plunged this morning, but at 8.8% of principal, traders are evidently still suspicious about Dublin’s ability to avoid a Greece-style second bailout and technical default.
In Portugal and Greece itself — where traders have to pay a full 16.6% premium to insure their bonds — the costs are actually rising this morning.
The euro is up a bit, but between the debt crisis in Europe and the slow grind over the U.S. debt ceiling, EUR/USD is a very crowded trade at the moment.