Wednesday, 30 May 2012 11:44
LONDON: German Bund futures were little changed on Wednesday after hitting a record high in the previous session as Spain's banking troubles kept investors nervous, making for a difficult backdrop to a sale of Italian bonds later in the day.
Domestic investors are expected to ensure sufficient demand for the Treasury's offer of up to 6.25 billion euros of five- and 10-year bonds, but borrowing costs are set to rise.
Further bad news from Spain could put more pressure on its 10-year yields which at 6.5 percent are already dangerously close to the 7 percent level beyond which borrowing costs are deemed unsustainable over the long-term.
"The newsflow in Spain continues to deteriorate quite quickly," a trader said. "They are getting to a stage where they can't fund themselves at a time when they are talking about having to do extra issuance to a) fund the banks and b) fund the regions."
German Bund futures were little changed at 144.31, but still within sight of the previous day's session high of 144.58.
Spain will soon issue new bonds to fund ailing lenders and indebted regions, a move which is set to put further pressure on already stretched finances.
Meanwhile European Central Bank policymaker Ewald Nowotny said on Tuesday that it is up to national governments to rescue any banks that get into trouble, denting hopes that the ECB would step in to help the euro zone's fourth largest economy. .
Early illiquid trading suggested a lower opening for Spanish bond prices, also one day after Egan-Jones Ratings cut Spain's credit level yet again.
Copyright Reuters, 2012