Bonds: Italy doing well but Greece flounders

LONDON (ShareCast) - These were the yields and movements on the benchmark 10 year bonds of some of the most watched countries by the close in Europe (Chicago Options: ^REURUSD - news) : Italy: 5.57% (-3bp) Spain: 5.28% (+2bp) France: 2.95% (+4bp) Germany: 1.9% (-3bp) UK: 2.09% (-3bp) US: 1.94% (-3bp) Greece: 32.99% (+6bp) Italy completed a successful auction of €6bn worth of bonds on Tuesday, achieving interest rates significantly better than in recent months. Of the total, €4bn was in notes due to mature in November (Stuttgart: A0Z24E - news) 2014. They went at an average yield of 3.41%, down from the 4.83% the country paid for similar securities in January. The benchmark 10 year yield also dropped as a result, despite the fact that Italy, along with Malta, Portugal, Spain, Slovakia and Slovenia, had its credit rating downgraded by Moody's last night. The reality is the ratings agencies are seen to be behind the curve, with the market having already priced in a downgrade. In fact investors are looking warmly at the policies of the new Italian administration under the unelected Prime Minister Mario Monti. Goldman Sachs (NYSE: GS - news) ended its buy rating for Italian bonds after the spread between its 10 year yield and that of France dipped below 250 basis points. In other words they do not look like such a bargain now that the yield is heading south. The more significant part of the Moody's announcement yesterday was a warning to both the UK and France that they face a downgrade if they fail to entrench fiscal discipline. In other concerning news, the Greek authorities said the country's gross domestic product in the final three months of 2011 was 7% below that of the comparable period of 2012. Although the country did not release full year figures, its own budget estimates of a 6% cut in GDP for the whole year now look optimistic. Athens' 10 year bonds gained six basis points during the day to reach near the 33% level. In Germany, the ZEW Centre for European Economic Research released a better than expected reading for its index of investor and analyst expectations. The measure jumped from minus 21.6 in January to a positive reading of 5.4 in February. This further emphasises the relative health of Europe's biggest economy and gives some hope an extreme "double dip" recession in the Eurozone may be avoided. BS