Euro maintained gains after an unexpectedly successful Belgian bond auction today. Despite the high Belgian bond yields and a lack of government, Belgium was able to sell 2 billion euros worth of government bonds meeting its set target.
Last week Standard and Poor’s downgraded the small euro zone economy, lowering its credit rating by one notch to AA from AA+. The ratings agency said bank guarantees, political instability and slowing economic growth will make it difficult to reduce the nation’s debt load. This sent bond yields surging.
Yields for the benchmark September 2021 bond rose to 5.659 percent from 4.372 percent at the last auction of the 10-year benchmark, in October. However, they were below secondary market levels.
Belgium sold bonds maturing between 2018 and 2041 after politicians reached agreement on the 2012 budget, clearing the way for the formation of a new government
Rabobank strategist, Richard McGuire said from London that “They only issued a small size which is always supportive although clearly the backdrop was challenging … Bid/covers are firm but yields are decidedly elevated so it’s a mixed bag.
“It’s certainly not a disaster given the poor backdrop but given the elevated nature of yields it does not provide much in the way of reassurance as regards Belgium’s long-term public finances sustainability. Belgium is still in the firing line, the crisis is still rolling on.”