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Spain's bond yields retreat, FTSE wavers after sell-off

Spanish government bond yields fall and FTSE 100 drifts following Tuesday's sell-off in equities and ‘peripheral’ eurozone debt.

 
Spain's bond yields retreat, FTSE wavers after sell-off

Spanish government bond yields pulled back and Britain’s FTSE 100 wavered on Wednesday, following a sell-off in the previous session in equities and ‘peripheral’ eurozone sovereign debt triggered by fears over Spain’s fiscal outlook.

The UK index of blue-chip shares eased 0.03%, or two points, to 5,594 and the All Share index weakened at 0.05%, or two points, to 2,910. See the FTSE’s performance and the index’s top winners and losers.

Spanish reforms

The yield, or implied interest rate, on benchmark 10-year Spanish government bonds retreated eight basis points to 5.92%, after opening at a four-month high of 6%. Italian government bond yields also pulled back slightly, as those on the perceived safe haven paper of the United States, Germany and Britain climbed.

According to Cagdas Aksu, fixed income strategist at Barclays Capital, Tuesday’s moves ‘effectively show us that most of the good news in the form of three-year LTROs and successful Greek PSI is behind us now’. He was referring to a flood of cheap loans unleashed by the European central bank and a Greek debt swap.

‘Market focus will be mainly on fundamentals and delivery of reforms in Italy and Spain,’ he added.

The euro rebounded 0.28% versus the dollar to $1.312, and was flat against sterling at €1.212.

Bailout speculation

Martin Van Vliet, economist at ING, said that amid risks to Spain’s planned fiscal consolidation, its bleak economic outlook and lingering doubts over the health of parts of its banking system, there is a risk that its bond yields could continue to rise.

‘The chance that Spain will need financial assistance from the EU and/or the IMF is also rising, but we have not yet reached the point where we think this is inevitable,’ he added in a research note.

Other stock markets in Europe also inched up: Germany’s DAX index gained 0.71% to 6,653, France's CAC 40 index strengthened 0.12% to 3,221, and the FTSEurofirst 300 index of top European shares was 0.19% higher at 1,028.

BSkyB downgraded

Security services firm G4S (GFS.L) topped the FTSE 100 leader board, adding 9.5p to 282.6p, after Morgan Stanley upgraded the stock to ‘overweight’ from ‘equal weight’.

Resources stocks were also among the biggest risers, as commodities prices recovered. Fresnillo (FRES.L) hardened 29p to £15.45 and Kazakhmys (KAZ.L) rose 12.5p to 865.5p.

BSkyB (BSY.L) was the biggest faller on the index, dropping 11p to 643p after Bank of America Merrill Lynch cut its recommendation for the broadcaster to ‘underperform’ from ‘neutral’.

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