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Spanish Bond Sale Succeeds as Data Show Euro Zone Slump Accelerating Spanish Bond Sale Succeeds as Data Show Euro Zone Slump Accelerating
(about 5 hours later)
PARIS — Spain sold debt Thursday in an auction that met with strong investor demand despite questions about the country’s bailout plans, as a report suggested the contraction of the 17-nation euro zone economy is accelerating. PARIS — Spain sold debt Thursday in an auction that met with strong investor demand despite questions about whether the country would request a bailout, as a report suggested that the contraction of the 17-nation euro zone economy was accelerating.
The Spanish treasury sold 4.8 billion euros, or $6.2 billion, of three- and 10-year bonds, more than the 4.5 billion euros it had targeted for sale. The ten-year bonds were priced to yield 5.666 percent, well below the 6.647 percent it received at a similar auction on Aug. 2. The Spanish Treasury sold €4.8 billion, or $6.2 billion, of 3- and 10-year bonds, more than the €4.5 billion it had targeted for sale. The 10-year bonds were priced to yield 5.666 percent, well below the 6.647 percent yield at a similar auction on Aug. 2.
The auction Thursday was the second this week that exceeded Spain’s goals for fundraising. The Spanish treasury sold shorter-term issues Tuesday, also amid high demand and at lower rates than the previous similar sale. The auction was the second this week that exceeded Spain’s goals for fund-raising. The Treasury sold shorter-term issues Tuesday, also amid high demand and at lower rates than the previous similar sale.
The lower yields suggest that investors are more comfortable holding Spanish debt. Euro zone fears have abated markedly since Sept. 6, when Mario Draghi, the president of the European Central Bank, said the E.C.B. was prepared to buy Spanish and Italian government bonds in “unlimited” quantities, if necessary, to end the pressure on the 17-nation currency bloc. The lower yields suggest that investors are more comfortable holding Spanish debt. Fears about the prospects for the euro zone have abated markedly since Sept. 6, when Mario Draghi, the president of the European Central Bank, said the E.C.B. was prepared to buy Spanish and Italian government bonds in “unlimited” quantities, if necessary, to end the pressure on the currency union.
The complication for Spain is that the government of Prime Minister Mariano Rajoy wants to avoid the strings that E.C.B. help would inevitably entail. He said last week that the falling yields might make such help unnecessary. The complication for Spain is that the government of Prime Minister Mariano Rajoy wants to avoid the strings that the central bank would attach to such aid. He said last week that the falling yields might make the central bank’s support unnecessary.
Spain has also been promised up to 100 billion euros in aid for restructuring its banking sector. Mr. Rajoy has said those loans should be made directly to the banks, rather than through the Spanish government, so as to avoid an increase in metrics of sovereign debt. That aid will not be forthcoming until questions about a new banking supervisory system for the euro zone are answered. Separately, Spain has been promised up to €100 billion in aid for restructuring its banking sector. Mr. Rajoy wants those loans to be made directly to the banks, rather than funneled through the Spanish government, so as to avoid an increase in its sovereign debt. But that aid is tied to the creation of a new banking supervisory system for the euro zone, and the region’s governments are divided on details of the regulatory plan.
In midafternoon trading Thursday, Spanish 10-year bonds were trading to yield 5.722 percent, while Italian 10-years were at 4.983 percent. Spain’s main problems — a stumbling economy and a broken labor market with unemployment of around 25 percent — have been compounded by fears of a euro zone breakup and capital flight from the country’s troubled banks. Spain appears unlikely to get any short-term help from a pickup in the economy, a survey of purchasing managers in the euro zone showed Thursday.
Spain’s main problems — a stumbling economy and a brutally broken labor market — have been compounded by fears of a euro breakup and capital flight from its troubled banks. The country appears unlikely to get any short-term help from a pickup in the economy, a survey of purchasing managers in the euro zone showed Thursday. Markit Economics, a research firm, said its composite output index for the euro zone fell to 45.9 in September, from 46.3 in August. It was the 12th time in 13 months that activity has declined, “with the rate of decline accelerating slightly to reach the fastest since June 2009,” Markit said.
Markit Economics, a research firm, said its composite output index for the euro zone fell to 45.9 in September, from from 46.3 in August, the 12th time in 13 months that activity has declined, “with the rate of decline accelerating slightly to reach the fastest since June 2009.” “The falls in production and new orders were widespread across the single currency area,” Markit said, though it noted that Germany — the largest euro zone economy — had held up fairly well, even as France — the second-largest — faltered.
“The falls in production and new orders were widespread across the single currency area,” Markit said, though it noted that Germany — the largest euro zone economy — had held up fairly well, even as France - the second largest — faltered. The decline in the index is “another reminder that the E.C.B.’s new asset purchase program is not an answer to all of the region’s problems,” Ben May, an economist with Capital Economics in London, wrote in a note, adding, “The euro zone recession looks set to deepen in the latter part of the year.”
The fall in the index is “another reminder that the E.C.B.’s new asset purchase program is not an answer to all of the region’s problems,” Ben May, an economist with Capital Economics in London, wrote in a note, adding that “the euro zone recession looks set to deepen in the latter part of the year.”
Markit’s broad gauge of German business activity rose in September to a five-month high of 49.7, up from a reading of 47.0 in August.Markit’s broad gauge of German business activity rose in September to a five-month high of 49.7, up from a reading of 47.0 in August.
While a reading below 50.0 suggests economic activity is stagnating, the purchasing managers data showed “a modest expansion of service sector activity broadly offset a continued reduction in manufacturing production,” Markit said. While a reading below 50.0 suggests that economic activity is stagnating, the purchasing managers’ data showed that “a modest expansion of service-sector activity broadly offset a continued reduction in manufacturing production,” Markit said.
Chris Williamson, an economist at Markit, said the data suggested that the euro zone’s July-September quarter had been the worst in three years, with the data “consistent with G.D.P. contracting by 0.6 percent in the third quarter and sending the region back into a technical recession.”Chris Williamson, an economist at Markit, said the data suggested that the euro zone’s July-September quarter had been the worst in three years, with the data “consistent with G.D.P. contracting by 0.6 percent in the third quarter and sending the region back into a technical recession.”
News of the E.C.B.’s newfound willingness to tackle surging sovereign borrowing costs had failed to raise business sentiment, he said, with the increasingly gloomy global outlook weighing on sentiment.News of the E.C.B.’s newfound willingness to tackle surging sovereign borrowing costs had failed to raise business sentiment, he said, with the increasingly gloomy global outlook weighing on sentiment.
Earlier Thursday, a purchasing managers survey from HSBC suggested that China’s manufacturing sector continued to slow in September for an eleventh-straight month, and Japan said its exports to Europe and Asia were faltering. In Greece, where the euro zone’s sovereign debt crisis began, a meeting Thursday between Prime Minister Antonis Samaras and his partners in a shaky coalition government ended without a final agreement on a new package of austerity measures.
Also on Thursday, a meeting between leaders of Greece’s shaky coalition government ended without a final agreement on a €11.5 billion package of austerity measures being demanded by foreign creditors. The €11.5 billion in cuts intended to shrink the country’s budget deficit have been demanded by the so-called troika of Greece’s foreign creditors — the European Commission, the European Central Bank and the International Monetary Fund. Further aid for Greece is conditional on the government’s making the cuts, as well as meeting other fiscal and economic goals.
The leader of the junior partner in the tripartite coalition, Fotis Kouvelis of Democratic Left, told reporters that “nothing has been finalized” and that “the negotiations are continuing.” The leader of the junior partner in the tripartite Greek coalition, Fotis Kouvelis of Democratic Left, told reporters that “nothing has been finalized.”
He also called on the heads of the trio of international lenders, referred to as the troika, to “stop attacking Greek society.” The lenders are the European Union, the European Central Bank and the International Monetary Fund. “The troika must understand that there are limits to what society can take,” Mr. Kouvelis added, referring to reports that the lenders have insisted on additional cuts to government pensions and salaries.
“The troika must understand that there are limits to what society can take,” Mr. Kouvelis said, referring to reports that lenders have insisted on additional cuts to pensions and salaries. Evangelos Venizelos, the leader of the socialist party Pasok, struck a similar note, saying the set of austerity measures under discussion “really has to be the last such package.” He also repeated demands that the troika give Greece two more years to accomplish the economic reforms demanded under the terms of the country’s €130 billion bailout.
Finance Minister Yannis Stournaras said talks with troika envoys would continue, focusing on some €2 billion in measures that have yet to be agreed upon. Greek efforts will focus on “minimizing the burden on low-income groups,” he said. The coalition partners are expected to meet again next week. Until then, negotiations between Finance Minister Yannis Stournaras and troika envoys are to continue.
In midafternoon trading the Euro Stoxx 50, a barometer of euro zone blue chips, was down 0.92 percent, and the FTSE 100-stock index in London was down 0.65 percent. Asian shares were broadly lower. After two and a half years of government austerity measures, there is growing public opposition to the prospect of more belt-tightening. Doctors, teachers, judges and transport workers staged walkouts this week ahead of a general strike set for Wednesday.
The euro was at $1.2953, down from $1.3070 late Wednesday in New York. Police officers protesting pending cutbacks clashed with fellow officers on duty outside the prime minister’s office on Thursday and were dispersed with pepper spray. Earlier in the day, Mr. Stournaras was heckled as he arrived for an earlier meeting at his ministry.
Niki Kitsantonis contributed reporting from Athens. Niki Kitsantonis contributed reporting from Athens.