The FINANCIAL -- Spanish and Italian government bonds opened in a more positive mood
Wednesday as markets took encouragement from news that European Union
leaders at the G-20 Summit are willing to do more to try and lower
sovereign borrowing costs.
However any new found commitment will be put to the test Thursday when Spain is scheduled to sell up to 2 billion euros ($2.5 billion) of short-dated debt into a market still trading at prohibitively high yield levels.
At 0850 GMT the yield on Spain's 10-year debt was six basis points lower on the session at 6.905%, while Italian 10-year debt was seven basis points lower at 5.825%, according to data from Tradeweb.
"Euro area members of the G-20 pledged to take all necessary policy measures to safeguard the integrity and stability of the area. Specific actions are expected to be announced by the EU summit on 28-29 June," said Unicredit analysts in a note to clients Wednesday.
While talk of fresh initiatives have given the market a slight boost, some analysts note that the delay in being able to implement these plans will continue to drag on the market.
"Talk of 'game changing' initiatives for the euro area continues aplenty. Now some of the press suggests that plans to have the ESM shortly buy sovereign bonds directly are afoot," noted analysts at Societe Generale, adding: "We find that there are still big issues ahead: even on a constitutional level, it will be hard to take action that would provide immediate relief."
Spain is offering EUR1 billion to EUR2 billion in three bonds, maturing in 2014, 2015 and 2017 on Thursday, after having to offer sharply higher yields on two shorter-dated Treasury bills at a sale Tuesday.
According to Borsa Italiana - London Stock Exchange Group, the Spanish Treasury sold both the 12- and 18-month Treasury Bills at an interest rate in excess of 5%, more than two percentage points higher than at a similar auction last month.
Analysts at Citigroup noted "Auction risks have risen, but there should be sufficient demand: we believe that this auction, like all the others that have come before it, will raise the target amount at a minimum, thanks to domestic support.
"But this is unlikely to bring much relief beyond the very near term, not least given the clearing yield level and the frequency of supply," it concluded.