German government bonds are opening lower Tuesday, but off their worst levels as Spain yield spreads trade wider after Moody’s decision to downgrade 28 Spanish banks by 1-4 notches. The downgrade was widely expected after Expansion story earlier in the session and follows the downgrade of Spain’s govt rating by 3-notches to Baa3 on June 13. The continued uncertainty over the exact size of Spain’s banking sector bailout, as well as issues regarding subordination (i.e. whether it will be funded through the EFSF or ESM) along with the terms of the loan, still need to be clarified. Jitters also compounded by news that Cyprus became the fifth eurozone sovereign domino to fall after it requested bailout money and comes in the wake of Fitch downgrade to junk status at BB+, outlook negative. Attention turns to Spain’s 3-mth-/6-mth T-bill auctions for up to E3.0bln. Also eyed is heavy slew of bond supply, which is scheduled from Italy (linkers), UK (2029 IL Gilt) and the Netherlands (10-year DSL), with possible book opening of Austria’s upcoming syndicated Euro benchmark. US sells 2-year Notes for $35bln.
EasyForexNews Research Team