German government bonds are sharply higher into the NY session Weds and extending recent FTQ gains, with benchmark 2Y Schatz yield hitting record low at 0.0074% and 10Y Bund yield 1.308%, amid increased jitters surrounding Spain and Italy. Confusion about Spain’s banking system continued to fuel flattening in Spain 2-/10-yr spread by another 27bps to +158bps. The move comes after ECB denied a media report that said it had rejected a plan by Spain to recapitalize troubled Bankia, via ECB funding operations. The ECB said it had not been consulted on the matter and had not taken a position on it. Italy 2-/10-yr yield spread is 26bps flatter at +160bps and 10-yr BTP yield earlier broke above 6% psychological level ahead of the month-end BTP bond auctions, which were disappointing given Tesoro didn’t sell full indicative size. Italy sold E3.391bln new 4.75% 2017 BTP at avg yield 5.66% (4.86%) cover 1.35 (1.34) and E2.341bln of 5.50% 2022 BTP at avg yield 6.03% (5.84%), cover 1.4 (1.48). Some profit taking seen in Bunds on EU Comm report on ESM direct recap, but prices now pushing higher.
EasyForexNews Research Team