Confidence Fades Amidst Rising Rates in Italy, Spain and Moody's Warning

Despite a relatively successful T-Bill auction and modest ECB intervention, Italian 5-year bond yields moved back above 7% Monday. This is widely seen as a key level. It is also reported that yields on Italian10-year bonds spiked above 6.8% while Spanish 10-year yields topped 6% in trading Monday.

Reuters is reporting that the ECB intervened to buy short-term Italian debt Monday after yields on Italian and Spanish debt spiked. But ECB sources told Reuters last week that purchases would remain limited with a maximum ceiling of 20 billion euros a week. Thus, it appears that it is business as usual as far as the ECB is concerned.

The action in the bond market, when coupled by a warning from Moody’s (Moody’s warned that the EU summit produced little and that the ratings of all Eurozone countries would be reviewed in the first quarter of 2012), has lead analysts to surmise that the latest EU summit has done little to restore confidence in the markets.

In response to yields rising in Spain and Italy, European stock markets have moved down with France’s CAC 40 down -1.5%, Germany’s DAX down -1.6%, and Italy’s FTSE MIB is -2.7%.

The action across the pond has put pressure on U.S. stock futures with the DJIA futures currently pointing to a loss of more than 60 points at the open.

 

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