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London - Spanish borrowing costs jumped at a debt auction on Tuesday but the sale went smoothly and German data gave an upbeat reading of the eurozone’s largest economy, providing some relief to investors worried about the debt crisis.
The euro and European shares rose and Spanish 10-year bond yields fell further below the key six percent level they breached on Monday. Investors fear Spain’s economic problems will reignite Europe’s troubles.
But the country sold 3.2 billion euros of 12- and 18-month Treasury bills, slightly above its target, although yields were higher than at the last sale and analysts said the success was largely due to the participation of domestic banks.
Spain faces another test of investor sentiment on Thursday with a more challenging sale of two-year and 10-year bonds.
“The key was again domestic bank bidding...But it doesn’t change the bigger picture too much. The key will be the bond auction on Thursday,” said Michael Leister, rate strategist at DZ Bank.
Concerns over Spain hit risk appetite across all major markets earlier, with shares around the world weaker, oil prices slipping and gold edging below a key level of $1,650 an ounce.
The surprise rise in the closely-watched German ZEW business sentiment boosted hopes that the economy is recovering, also aiding European shares and the euro.
The FTSE Eurofirst index of top European shares was last 0.9 percent higher at 1,041.86, with the MSCI world equity index up 0.3 percent.
The euro was up 0.1 percent at $1.3155, having pulled away from a two-month low of $1.2995 hit on Monday, while the dollar was 0.1 percent lower against a basket of major currencies at 79.45.
German government bonds, viewed as the euro zone’s safest debt, fell after the data and Spanish auction cooled demand for less risky assets.
Ten-year Bund yields were up 3.7 basis points at 1.67 percent after falling as low as 1.622 percent on Monday.
Italian 10-year yields, which had followed Spanish bonds higher, were down six basis points at 5.53 percent .
If Spanish yields resume their rise and pull other peripheral sovereign debt yields up, the European Central Bank will face growing pressure to resume its bond purchases after last doing so on Feb. 29.
Spanish banks are easily the biggest borrowers from the ECB.
“We think the current amount of liquidity seems sufficient to cover funding needs in Italy and Spain, at least for now. That being said, the market may be asking for reassurance further out,” Barclays Capital analysts said in a research note.
The euro and European shares rose and Spanish 10-year bond yields fell further below the key six percent level they breached on Monday. Investors fear Spain’s economic problems will reignite Europe’s troubles.
But the country sold 3.2 billion euros of 12- and 18-month Treasury bills, slightly above its target, although yields were higher than at the last sale and analysts said the success was largely due to the participation of domestic banks.
Spain faces another test of investor sentiment on Thursday with a more challenging sale of two-year and 10-year bonds.
“The key was again domestic bank bidding...But it doesn’t change the bigger picture too much. The key will be the bond auction on Thursday,” said Michael Leister, rate strategist at DZ Bank.
Concerns over Spain hit risk appetite across all major markets earlier, with shares around the world weaker, oil prices slipping and gold edging below a key level of $1,650 an ounce.
The surprise rise in the closely-watched German ZEW business sentiment boosted hopes that the economy is recovering, also aiding European shares and the euro.
The FTSE Eurofirst index of top European shares was last 0.9 percent higher at 1,041.86, with the MSCI world equity index up 0.3 percent.
The euro was up 0.1 percent at $1.3155, having pulled away from a two-month low of $1.2995 hit on Monday, while the dollar was 0.1 percent lower against a basket of major currencies at 79.45.
German government bonds, viewed as the euro zone’s safest debt, fell after the data and Spanish auction cooled demand for less risky assets.
Ten-year Bund yields were up 3.7 basis points at 1.67 percent after falling as low as 1.622 percent on Monday.
Italian 10-year yields, which had followed Spanish bonds higher, were down six basis points at 5.53 percent .
If Spanish yields resume their rise and pull other peripheral sovereign debt yields up, the European Central Bank will face growing pressure to resume its bond purchases after last doing so on Feb. 29.
Spanish banks are easily the biggest borrowers from the ECB.
“We think the current amount of liquidity seems sufficient to cover funding needs in Italy and Spain, at least for now. That being said, the market may be asking for reassurance further out,” Barclays Capital analysts said in a research note.
