GREEK BONDS SINK WHILE IRELAND’S BORROWING COSTS JUMP
By Rom Badilla, CFA – Bondsquawk.com
Greek bond yields spiked today as investors are forced to sell due to Moody’s downgrade to junk status yesterday. Bloomberg reports that widely followed fixed indices may drive investors to sell.
Citigroup said Greek debt will be removed from the World Government Bond Index, the EMU Government Bond Index and the World Broad Investment-Grade Bond Index by the end of June. Greek bonds will also be removed from Barclays’ Global Aggregate and Global Treasury indexes. Investors who have a mandate to track an index in their funds may be forced to sell an asset when it’s removed from the gauge.
The yield on 2-Year Greece Government bonds jumped 78 basis points to 8.62 percent while the 5-Year finished at 9.43 percent, an advance of 67 basis points. The yield on the 10-Year closed higher by 74 basis points to 9.08 percent.
Greece Yield Curve – Daily Change
Around the European horn, German yields are up slightly as the 5-Year closed at 1.52 percent, an inch upward by 2 basis points. France’s increased a basis point to 1.88 percent while U.K. Gilts are lower by a basis point to 2.26 percent.
Ireland borrowing costs soared as the country auctioned off 1.5 billion euros of debt in 6 and 8-Year notes at a 4.52 and 5.09 percent yield, respectively. Yields came in much higher than the last auction where the 6-Year came in at 3.66 percent while the 8-Year cleared at 4.55 percent. The benchmark 5-Year bond spiked 32 basis points from yesterday’s close to a yield of 4.58 percent.
Spain’s 5-Year edged higher by 8 basis points to 3.79 percent while Portugal’s closed at 4.16 percent, a jump of 15 basis points. The yield on 5-Year Italy bonds finished lower to 2.93 percent, a drop of 8 basis points.
Despite the rise in bond yields, the Euro is up 1.03 percent to 1.2346.
This is the story of the day Rom. Nice work. Nothing has fundamentally changed in the Euro. This rally looks like another case of short covering and technicals.
Investors seem to have this head and shoulders in their sights. If so, we could see EUR ~1.26 an S&P 1150 in the coming month. Rally into earnings and then mixed earnings and guidance give investors the jitters again?
speaking of head and shoulders…….this might be the last shoulder of the “head n shoulders” DOW TA.
Thanks TPC. There’s really no big news today to justify the surge in stocks. All of the economic numbers were generally on the wrong side. Empire manufacturing was below surveys while the Housing Market Index was lower as well. ABC Consumer Confidence is full of doubt at -45, off from surveys of -43.
Stocks are up big at +2 percent while bond yields are up only 4-5 basis points. Not exactly a big move in the bond markets. High yield spreads tightened but investment grade did not move which I also find surprising. Also, euro bond yields were higher across the board.
I think this is all technical backed by the deadcat bounce in the Euro. I will admit that the bounce in both markets is alot stronger than I would expect. Maybe everyone was piling into the short camp and some are scrambling now?
I am not a technician but if anyone has insight on the much talked about head and shoulders formation and likelihood of it happening, I’d like to know. =)