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Eurozone debt crisis worsens as Germany struggles to sell bonds

Brandendburg
How could things get worse in Europe? Try this: Now Germany is having trouble finding investors to buy its bonds.

The German treasury could only sell about two-thirds of the $8.1 billion in 10-year bonds it wanted to issue on Wednesday, which sent market yields higher on German debt and across the Eurozone.

It isn’t unheard of for German bond sales to come up short. But at a time like this -- with investors already fleeing bonds of most other Eurozone countries -- the disappointing sale stoked fears that the continent’s debt crisis has reached a dangerous new tipping point.

The market yield on German 10-year bonds soared to a 3 1/2-week high of 2.15% from 1.92% on Tuesday.

Spanish 10-year bond yields rose to a new euro-era high of 6.65% from 6.61% on Tuesday. In France, 10-year bond yields shot up to 3.69% from 3.53%. Belgium was hit particularly hard, with its 10-year yield surging to 5.48% from 5.08% on Tuesday.

Not surprisingly, European stock markets slumped for a third day, sending key indexes closer to their 2 1/2-year lows reached in September. Stocks slid 2.6% in Italy, 2.1% in Spain and 1.4% in Germany.

The euro fell 1.1% to $1.336, its lowest level since Oct. 7.

Wall Street also was dragged lower. The Dow Jones industrial average was off 194 points, or 1.7%, to a six-week low of 11,299 at about 11 a.m. PST. Weak economic data from China also hurt sentiment.

Financial markets have been looking to the European Central Bank to halt the continent’s debt contagion and restore investors’ confidence in buying government bonds. In theory, the ECB could commit to buying unlimited quantities of bonds to try to hold down rates.

But the bank has seemed reluctant to act aggressively, and Germany and France are clashing over how big a role the ECB should play even as the debt debacle has spread from Greece to the heart of Europe.

German Chancellor Angela Merkel continues to oppose a massive bond-buying program by the ECB. She also opposes the idea of Eurozone governments issuing bonds backed by all countries in the currency union, which in effect would make Germany responsible for other nations' debts.

But with German bonds now under pressure, Merkel’s obstinacy risks pushing investor confidence to the point of no return.

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-- Tom Petruno

Photo: The Brandenburg Gate in Berlin, illuminated for the annual "Festival of Lights." Credit: Michael Sohn / Associated Press

Bond yields rise again in Europe; IMF offers new help

Lagarde
There's a breaking point out there somewhere for Europe's debt crisis, and markets seem intent on finding it.

Investors on Tuesday continued to demand higher yields on government bonds of Spain, Italy, France and Belgium, as the continent’s debt woes deepened.

Greece, the epicenter of the crisis, is almost the least of Europe’s worries now.

Spain had to pay 5.11% to issue three-month government bills, more than twice what it paid a month ago. A leader of Spain’s new governing party called on the rest of the Eurozone to “save and guarantee the solvency” of the country’s debt market, saying that borrowing costs were becoming prohibitive.

The yield on 10-year Spanish bonds rose to a new euro-era high of 6.61% from 6.55% on Monday.

Belgium’s 10-year bond yield surged to 5.08%, up from 4.82% on Monday and the highest since 2008.

The International Monetary Fund, led by France's Christine Lagarde, announced that it would make it easier for struggling countries to tap IMF credit lines. That may help, but it’s also a sign that the situation in Europe is worsening.

Financial markets have been looking to the European Central Bank to halt the contagion. In theory, the ECB could commit to buying unlimited quantities of government bonds to try to hold down rates. But the bank has seemed reluctant to act aggressively, and Germany and France are clashing over how big a role the ECB should play.

German Chancellor Angela Merkel continues to oppose a massive bond-buying program by the ECB. She also opposes the idea of Eurozone governments issuing bonds backed by all countries in the currency union. Merkel wants to put more pressure on cash-strapped governments to get their fiscal houses in order.

But as bond yields continue to rise and Eurozone stock markets continue to sink, the risk is that Merkel could push Europe’s financial system into an abyss.

Stocks fell further Tuesday, with the Italian market down 1.5%, Spanish shares down 1.4% and the French market down 0.8%. The markets are sinking closer to the 2 1/2-year lows reached in September.

The euro currency, however, was steady at $1.351, up slightly from $1.349 on Monday.

RELATED:

U.S. GDP revised lower for third quarter

Spain pays the price for regional overspending

U.S. banks face rising risk from Eurozone crisis

-- Tom Petruno

Photo: International Monetary Fund Managing Director Christine Lagarde. Credit: Michele Tantussi / Bloomberg News

 

Bill Gross, Larry Fink talk economy, jobs and the markets

Fink

Want to know more about the bond barons featured in Sunday's edition of The Los Angeles Times?

Bloomberg TV is airing tonight an hour-long interview with BlackRock CEO Larry Fink and Pimco co-founder Bill Gross, in which the two financial titans discuss the global economy, job creation and even the Occupy Wall Street protests. (The financial news channel also has online video here and here.) 

Gross and Fink, who both grew up in California and attended UCLA, have often found themselves at opposite viewpoints on the economy. Both are fretting that economic growth in developed countries could be weighed down for years by debt problems in Europe and high unemployment in the U.S. Gross is more bearish about the future, while Fink says in the interview that he's more optimistic because of the underlying "vitality" in many of America's cutting-edge companies.

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The rise of the bond barons

Dow falls to five-week low as global gloom deepens

-- Joe Bel Bruno

Photo: Pimco co-founder Bill Gross, left, with BlackRock CEO Larry Fink. Credit: Bloomberg

 

No deficit deal? No problem ... for Treasury bonds

Treasury yields slid Monday morning despite the apparent failure of the congressional "super-committee" to come up with more than $1 billion in deficit cuts over the next decade.
So hopes for Congress to show some spine on deficit reduction have been crushed.

Let's show them how outraged we are: Buy more Treasury bonds!

That's the market reaction on Monday, as Treasury yields slide despite the apparent failure of the congressional "super-committee" to come up with more than $1 trillion in deficit cuts over the next decade.

While stocks dive, the yield on the 10-year T-note slid to 1.95% by about 11 a.m. PST, down from 2.01% on Friday.

In another sign of strong demand for government paper, the Treasury sold $35 billion worth of two-year notes at a yield of 0.28%, slightly below expectations.

If investors took the opposite tack -- dumping Treasuries and driving yields higher -- it might send a powerful message to lawmakers to get their act together on the nation's spiraling debt load.

But in times of fear, Treasuries still are the world's favorite haven. At least you know you'll get back the bonds' face value, because the government can always print more money.

This is smelling like August, when Standard & Poor’s surprise downgrade of America's credit rating to AA+ from AAA triggered massive selling in stocks, commodities and other assets -- and, ironically, drove Treasury bond yields sharply lower as investors ran for cover.

Stocks tumbled in Europe on Monday, with the German market down 3.4%, Italian stocks down 4.7% and the Spanish market off 3.5%. It didn't help the mood that Spanish government bond yields continue to rise after voters threw out the Socialist government: The 10-year yield rose to a new euro-era high of 6.55%, from 6.38% on Friday.

On Wall Street, stocks were broadly lower in thin trading. The Dow Jones industrial average was off 316 points, or 2.7%, to a five-week low of 11,479 at about 11 a.m. PST. The Dow slumped 2.9% last week.

Commodities also were hit hard Monday, with gold futures dropping $46.40 to $1,678.30 an ounce, a four-week low.

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"Super-committee" is all but admitting defeat

Corporate power grows stronger as government wanes

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-- Tom Petruno

Photo: The Capitol in Washington. Credit: Associated Press

Eurozone bond yields rise again despite ECB buying

Ecbbldg
European government bond yields mostly continued to rise Wednesday, even as the European Central Bank apparently ramped up purchases to try to calm investors.

The jump in interest rates in recent days signals a further spreading of the debt-crisis contagion from Italy to other countries, as investors grow increasingly fearful about governments' abilities to pay their debts.

The ECB’s purchases did help push Italian bond yields modestly lower. The 10-year Italian bond slipped to 7.00% from 7.07% on Tuesday.

But 10-year bond yields rose in France, Spain, Austria and Finland. The French 10-year yield edged up to 3.71%, the highest since April, from 3.68% on Tuesday.

Market yields rise as bond prices fall. Over the last week, nervous investors have been dumping Eurozone bonds, even those of countries still rated AAA, such as France and Austria.

Financial markets have been looking to the European Central Bank to halt the contagion. In theory, the ECB could commit to buying unlimited quantities of bonds to try to hold down rates. But the bank has seemed reluctant to act aggressively, and Germany and France apparently are clashing over how big a role the ECB should play.

Separately, Reuters reported that the head of Italian banking giant UniCredit had urged the ECB to increase access to borrowing for Italian banks, pointing up funding issues for the lenders.

The euro currency slipped for a third day, off 0.1% to $1.353. The euro has tumbled from $1.42 three weeks ago.

European stock markets rallied off their lows for the day, closing higher after two days of losses. The Italian market rose 0.8%, French stocks rose 0.5% and the Swiss market added 0.4%.

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Photo: The euro symbol outside the European Central Bank's headquarters in Frankfurt. Credit: Bernd Kammerer / Associated Press


Bond yields jump in France, Belgium, Austria as crisis spreads

A new selling wave swamped government bond markets in Europe
More dominoes may be about to fall in Europe.

A new selling wave swamped government bond markets on the continent Tuesday, driving yields sharply higher in France, Belgium, Austria and Spain, among others.

Despite its AAA-credit rating, France's 10-year bond yield soared to 3.68%, up from 3.42% on Monday and the highest since April. The yield has surged from 2.50% in early September.

Belgian 10-year bond yields rose to 4.91%, from 4.59% on Monday.

The jump in interest rates signals a further spreading of the debt-crisis contagion from Italy to other countries, as investors grow increasingly fearful about governments' abilities to pay their debts.

"The respite from Eurozone issues was ephemeral at best as changes in leadership in Italy and Greece [last week] were not enough to convince markets that the debt issues were any closer to resolution," George Goncalves, interest rate strategist at Nomura Securities, wrote in a note to clients.

Making matters worse, a new European recession seems increasingly likely, which will only make it more difficult for governments to dig out of their debt holes.

Rocketing yields on Italian bonds over the last two months opened a new and more dangerous chapter in the debt crisis. Italy's woes led to the departure of Prime Minister Silvio Berlusconi over the weekend.

On Monday, Italy paid a yield of 6.29% to issue $4 billion in new five-year bonds. The rate was the highest in 14 years. By contrast, the U.S. Treasury pays just 0.90% on five-year debt.

Financial markets have been looking to the European Central Bank to halt the contagion. In theory, the ECB could commit to buying unlimited quantities of bonds to try to hold down rates. But the ECB has seemed reluctant to act aggressively.

"In the prophetic words of Sting, the market is sending out an SOS to ECB policymakers," Goncalves said. "However, a good response from the ECB does not seem forthcoming."

European stock markets ended mostly lower for a second straight session. The Italian market fell 1.1%. French shares slid 1.9%. But stocks remain above their September lows.

The euro currency slipped 0.6% to a one-week low of $1.355.

RELATED:

Economist named new Italian prime minister

Spain pays the price for regional borrowing binge

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-- Tom Petruno

Photo: A depiction of Belgian cartoon hero Tintin and his dog Snowy is seen atop the Lombard Building, backdropped by the Brussels skyline. Credit: Geert Vanden Wijngaert / Associated Press

When will the market say 'no more' to U.S. debt binge?

Treasurybuild
Soaring interest rates on Italian government bonds over the last five weeks show how quickly the market can send a powerful message to debtor nations: You've borrowed enough.

So where is that market comeuppance for the U.S. Treasury, the world's single largest debtor, with nearly $15 trillion borrowed?

It now appears that the congressional "super committee" set up to rein-in the government's massive deficit spending could fail to arrive at an agreement by its Nov. 23 deadline.

Yet that seems unlikely to trigger a surge of selling in Treasury bonds that would drive up interest rates from their current near-record-low levels.

As I note in my weekend column in The Times, the U.S. is benefiting from Europe's unrelenting debt crisis by looking like the best house in a deteriorating neighborhood. And there are other factors as well that are likely to hold U.S. bond yields down for the time being.

From the column:

It's wrong to take comfort in the suffering of others.

But for millions of Americans who've sought refuge in bond investments since 2008, it's hard not to be appreciative of Europe's grinding financial crisis.

The threat of a meltdown across the Atlantic has kept money pouring into high-quality U.S. bonds, particularly Treasury issues, as a haven. That has held interest rates near generational lows since early August, in turn boosting the value of older bonds issued at higher rates.

Much of Europe, meanwhile, has faced just the opposite situation: Government bond yields have surged -- most recently in Italy -- as global investors continue to fear that the ultimate solution to the continent's debt debacle will be widespread defaults.

Yet many Americans also sense that Europe's woes are a warning. As total U.S. Treasury debt outstanding has mushroomed to nearly $15 trillion now from $10.6 trillion three years ago, a day of reckoning must be out there for Washington too.

Read the full column here.

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Twitter.com/tpetruno

Photo: The Treasury building in Washington. Credit: Brendan Smialowski / Bloomberg News

 

Italian bond yields dive, but fear still dogs Eurozone debt markets

Italysenate
Battered European markets got some relief Friday, as Italian bond yields tumbled from 14-year highs.

But global markets are just trading from headline to headline, and the Eurozone debt crisis is far from over. Enjoy this while it lasts.

In Italy, the yield on the 10-year government bond dived to 6.45% from 6.89% on Thursday. The yield had reached 7.25% on Wednesday, the highest since 1997, as fears mushroomed about Italy’s creditworthiness.

On Friday the Italian Senate passed an austerity budget, acceding to European Union demands. That should pave the way for embattled Prime Minister Silvio Berlusconi to resign.

The Italian stock market jumped 3.7% for the day, but remains nearly 7% below its recent high reached Oct. 27. The euro rallied 1.2% to $1.377.

Even though Italian bond yields pulled back, the 10-year yield still ended the day above its level of 6.37% a week ago, and well above the level of 5% in late August.

The next big test for Italy: The government will try to sell about $4 billion of five-year bonds on Monday. The current market yield on that debt maturity: a pricey 6.46%.

In a sign that investors remain suspicious about Eurozone debt in general, yields fell only modestly in other key countries. The Spanish 10-year bond yield slipped to 5.85% from a three-month high of 5.86% on Thursday.

And France -- the core of the Eurozone, with Germany -- remains a source of significant concern, after its bond yields also soared this week.

The yield on 10-year French bonds eased to 3.39% on Friday after jumping to a four-month high of 3.47% on Thursday.

The surge in yields on Thursday was fueled by an apparently erroneous report that Standard & Poor’s had cut France’s AAA credit rating. S&P later said the report was a mistake. Yet the French 10-year yield remains well above its level of 3.05% a week ago.

A continuing rise in French yields could be more dangerous for Europe than the surge in Italian yields, because France and Germany are considered Europe’s strongest economies. Without them, there is no possibility of rescuing the continent’s deeply troubled states.

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Photo: The Italian Senate on Friday, before its vote on austerity measures. Credit: Pier Paolo Cito / Associated Press

Italian bond yields fall, but French yields soar on S&P 'error'

The Eurozone's debt crisis eased a bit on Thursday as Italian government bond yields pulled back from 14-year highs
The Eurozone's debt crisis eased a bit on Thursday as Italian government bond yields pulled back from 14-year highs.

But markets got a new jolt as French bond yields jumped, fueled by an apparently erroneous report that Standard & Poor's had cut France's AAA credit rating. S&P said the report was a mistake.

European stocks were mixed. Wall Street was rebounding at midday after diving on Wednesday. The Dow Jones industrial average was up 130 points, or 1.1%, to 11,914 at about 11 a.m. PST, after plunging 389 points on Wednesday.

Italy surprised markets by attracting decent demand at its auction of $6.8 billion of one-year bills, though it paid a hefty price: a yield of 6.09%. Just a month ago, the country was paying 3.57% to borrow for one year.

The U.S. Treasury, by contrast, pays a minuscule 0.08% on one-year debt.

Fear that Italy could default on its $2.6 trillion in sovereign debt has surged in recent weeks, opening a dangerous new chapter in the 2-year-old European debt crisis.

But Thursday's auction helped calm the markets for the moment. Traders said the European Central Bank also was an active buyer of Italian bonds, trying to suppress yields.

The yield on 10-year Italian bonds slid to 6.88% after rising early in the session to 7.40%, the highest since 1997. The jump in the yield above the 7% mark on Wednesday was one of the triggers for the day's global rout in stocks.

Meanwhile, market yields on French bonds soared Thursday after S&P said a "technical error" caused it to send an email to some subscribers "suggesting that France's credit rating had been changed."

S&P said late in the day that there was no change; it affirmed that France's rating remains AAA.

But the damage was done: The yield on 10-year French bonds rocketed to 3.47%, up from 3.20% on Wednesday and the highest since early July.

A continuing rise in French yields could be more dangerous for Europe than the surge in Italian yields, because France and Germany are considered Europe's strongest economies. Without them, there is no possibility of rescuing the continent’s deeply troubled states.

The French government knows it can't afford for the bond market to turn on it. Paris announced a new round of spending cuts last week aimed at ensuring that the country holds on to its AAA rating.

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-- Tom Petruno
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Photo: The Italian flag flies outside Montecitorio palace in Rome. Credit: Tony Gentile / Reuters

Freddie Mac: 30-year mortgage rate back below 4%

Freddie sign - AP - Pablo Martinez Monsivais

The typical rate that lenders are offering on a standard 30-year mortgage is back below 4% for the second time this year, Freddie Mac says.

The rate fell from an even 4% in Freddie's survey last week to 3.99% in the survey released Thursday. The 3.94% recorded in the Oct. 6 report was the lowest in the 40 years that Freddie Mac has been asking lenders across the country about the rate they are offering on the 30-year loan.

The typical interest rate on the 15-year fixed home loan dropped from 3.31% to 3.30% in the latest survey. Borrowers would have paid less than 1% of the loan balance in fees to obtain the loans, Freddie Mac said.

Solid borrowers who shop around often find slightly better rates than those in the survey, and paying additional points upfront to lenders also can lower the rate.

The mortgage rates are a huge boon for home buyers and refinancers with solid credit and income, 20% down payments or 20% home equity -- the kind that would qualify for the loans of up to $417,000 that the survey focuses on.

But they are available at a cloudy time. Foreclosures are rising again, and the rates are scraping bottom mainly because investors are so spooked by the European debt crisis. That has increased demand for U.S. debt securities, still presumed to be a safe haven.

That demand has depressed the yield on Treasury securities, and mortgage rates tend to track Treasury yields. And there is too little in the recent mixed economic news to suggest that inflation could reassert itself in the United States, driving interest rates higher.

"The economy added 80,000 net jobs in October, below the market consensus forecast, but employment gains over the prior two months were revised up by 102,000 and the unemployment rate fell to 9.0 percent, the lowest in six months," Freddie Mac economist Frank Nothaft said. "Factory orders improved in September, yet the expansion in the service industry slowed in October."

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--E. Scott Reckard

Photo: Freddie Mac headquarters, McLean, Va. Credit: Pablo Martinez Monsivais / Associated Press

Eurozone debt jitters creeping into French bonds

France
The European debt crisis has gone from bad to worse as Italian government bond yields have soared, threatening the solvency of the Eurozone’s third-largest economy.

But things could go from worse to worst if bond yields keep rising in France, the continent’s No. 2 economy after Germany.

The market yield on 10-year French bonds jumped to 3.20% on Wednesday from 3.10% on Tuesday. The yield is below the recent high of 3.32% reached on Oct. 24. But what’s troubling about Wednesday’s jump is that it occurred even as German bond yields fell.

Normally, German and French bond yields rise or fall in tandem, reflecting the countries' sort of joined-at-the hip status as the core economies of Europe.

But as global markets tumbled Wednesday, investors rushed to buy German bonds as a haven, while dumping French debt.

The yield on German 10-year bonds fell to 1.72% from 1.80% on Tuesday. The German yield is nearing the recent low of 1.67% reached on Sept. 22.

The French 10-year yield, by contrast, has jumped from 2.52% on Sept. 22. At 3.20%, it's still far below the 7.25% yield on Italian 10-year debt. But it's the trend that's worrisome.

The French government knows it can’t afford for the bond market to turn on it. Paris announced a new round of spending cuts last week aimed at ensuring that the country holds on to its coveted AAA credit rating.

Moody’s Investors Service warned last month that it might put a negative outlook on France’s top-rung rating if Paris made too many commitments to back up its banks or other Eurozone states with tax dollars.

But France’s need to protect itself also raises doubts about its ability to extend help to Italy as Rome’s debt nightmare worsens.

RELATED:

Markets fear new threat to Eurozone

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Italy's embattled prime minister agrees to depart

-- Tom Petruno

twitter.com/tpetruno

Photo: The highrise sky-scrapers of Paris' financial district of La Defense, as seen from the upper deck of the Eiffel Tower. Credit: Ian Langson / EPA

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