Eurozone bond market gives cool response to EU summit

9th December 2011, Comments 0 comments

The cost of financing debt fell for France but rose for Italy and Spain in the first response from the critically important bond market early Friday after the EU summit which ended overnight.

The European Union summit agreed to harden up discipline over national budgets and also agreed that there would be no more talk of making private holders of bonds participate in any future bailouts by losing money.

These are two particularly important factors of the eurozone debt crisis for the bond market.

The interest rate or yield indicated by the market on French 10-year bonds eased to 3.278 percent from 3.343 percent at the close on Thursday.

The yield on the eurozone benchmark German 10-year bond firmed slightly to 2.032 percent from 2.013 percent.

At BNP Paribas bank, analyst Patrick Jacq said that the outcome of the summit was broadly in line with expectations in the light of statements by German Chancellor Angela Merkel and French President Nicolas Sarkozy on Monday.

The Italian yield rose to 6.548 percent from 6.444 percent and the Spoanish yield to 5.835 percent from 5.784 percent.

The yield on British 10-year gilt-edged bonds firmed to 2.136 percent from 2.117 percent.

Britain is a member of the European Union but not of the eurozone, and it stood aside from the main decision at the summit.

"The market's worst fear has been realised in that the EU summit is yet another EU meeting hyped up with great fanfare but failing to deliver," said Neil MacKinnon, an economist at VTB Capital financial group in London.

"The immediate reaction is certainly negative for eurozone equity markets and bond markets. Bond investors are likely to continue reducing their exposure to eurozone markets, while depositors will take funds out of what they consider to be fragile banks."

© 2011 AFP

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