German government bonds are higher Thursday but off their best levels following well received Spain bond auction results, which prompted further tightening in Spanish and Italian yield spreads. Attention now turns the Bank of Spain’s stress test results that are due at 1530GMT. The results will report the key findings of evaluation of the 2 independent private consultants — Wyman & Berger audit on Spanish banks to test how robust they are in a crisis scenario. Spanish bonds rallied after the auction results, where the Tesoro allotted a total E2.22bln 3.40% 2014 BONO, 4.00% 2015 Bono and 5.50% Obligacion issues, once again exceeding the maximum indicated target range of E1.0bln-E2.0bln. However, the bonds sold at a higher yield and larger tail compared to previous auction results. The Spain 10-year yield spread tightened to +487bps — 22bps on session on earlier unsubstantiated market talk ECB buying Italian & Spanish bonds via SMP. However, market sources dismissed this and attributed tightening move to real money & hedge funds short-covering. Spread is now at +491bps.
EasyForexNews Research Team