Spanish Auction the Non Event – Markets Do Not Respond

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The markets had been holding on pins and needles waiting for the Spain bond auction today. And what happened. Much of nothing.

Spain’s Treasury sold EUR1.116 billion worth of two-year government bonds at an average yield of 3.463% earlier in the day, up sharply from 2.069% at a similar auction last month.

The country also sold EUR1.425 billion of ten-year debt at an average yield of 5.743%, up from 5.338% at a similar auction last month. It was the highest yield in five months.

Bond auctions have become key drivers of risk sentiment in recent months, as traders attempt to gauge the ability of indebted euro zone nations to fund themselves.

There have been renewed concerns of further debt contagion in the euro zone in recent weeks amid fears Spain will be the next in the euro zone to require a bailout. Following the bond auction, the euro trimmed gains against the U.S. dollar to trade largely unchanged

Asian markets are trading on a mixed note today as investors remain cautious before an important Spanish bond sale that would examine the market’s risk appetite as concerns with respect to Europe’s debt crisis increased.

Spain faces a major challenge with an auction of  2-year and 10-year bonds today which worth as much as 2.5 billion Euros. Spain’s yield of 10-year government bond rose above 6 percent in the initial part of this week which has increased concerns that the country may not be able to control its public financing and would go for a global bailout. This has led to rise in risk aversion in the global markets today. 

The US Dollar Index (DX) strengthened around 0.2 percent on Wednesday mainly on the back of rise in risk aversion in the global markets which increased demand for the low-yielding dollar. Rising worries over Euro Zone debt crisis led downside in the Euro which also acted as a supportive factor for the US dollar.  The index touched an intra-day high of 80.03 and closed its trading session at 79.67 yesterday.

Escalating tensions with respect to Euro Zone debt worries coupled with weak sentiments in the global markets led the Euro to trade lower on Wednesday.

Additionally, strength in the US dollar also acted as a negative factor for the Euro yesterday. The currency touched an intra-day low of 1.3056 and ended its trading session at 1.3118 on Wednesday.

Current account deficit in the Euro Zone stood at 1.3 billion Euros in February as compared to a surplus of 3.7 billion Euros in the previous month.

Gold futures fell for the third time in four sessions as the dollar’s advance curbed demand for the precious metal as an alternative asset.

The greenback climbed as much as 0.5 percent against a basket of major currencies, and the Standard & Poor’s GSCI Spot Index of 24 raw materials declined as much as 1.4 percent. Spain struggled to convince investors that the nation’s finances are under control, before another debt sale tomorrow.

Gold futures for June delivery slid 0.7 percent to settle at $1,639.60. The metal has  declined 1.9 percent this month. Jewelers in India, the world’s biggest importer, ended a 21-day strike on April 6 to protest a tax on nonbranded gold items. Sales in India “are nearly 80 percent lower on a daily basis than they used to be,” Jon Nadler, an analyst at Kitco Inc. in Montreal, said in an e-mail. Silver futures for May delivery retreated 0.6 percent to $31.487 an ounce, extending the monthly loss to 3.1 percent.

Futures were little changed after declining the most in two weeks yesterday. U.S. supplies gained 3.9 million barrels last week, Energy Department data showed. The median forecast in a Bloomberg News survey of analysts was for an increase of 1.8 million barrels. Prices also dropped after Iraq’s deputy prime minister for energy said the Strait of Hormuz is unlikely to close and there is no shortage of oil.

Crude for May delivery was at $102.58 a barrel, down 9 cents, in electronic trading on the New York Mercantile Exchange at 12:54 p.m. Singapore time. It slid 1.5 percent yesterday to $102.67, the lowest close since April 10. The more-actively traded June contract dropped 10 cents to $103.02 a barrel today. Front-month prices are 3.8 percent higher this  year.     

Brent  oil  for  June settlement rose 0.3 percent to $118.26 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark contract’s premium to West Texas Intermediate was at $15.24, from $14.85 yesterday

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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