Spain downgrade jars, Italy auction calms

Fri Apr 27, 2012 9:44am EDT
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By Michael Dolan

LONDON (Reuters) - Spanish and Italian borrowing rates nudged higher on Friday after a two-notch downgrade of Spain's sovereign credit rating, but world equity and currency markets shrugged off the move and Italy managed to sell almost 6 billion euros of new bonds.

Spain's 10-year borrowing rate briefly topped 6 percent again in early trade after Standard & Poor's ratings firm late on Thursday cut the country's credit rating to BBB plus on concern about the government's exposure to its ailing banks.

But yields slipped backed later to trade just 6 basis points higher on the day at 5.95 percent. Italian yields were also slightly higher, but nerves were eased as it sold 5.95 billion euros ($7.87 billion) of new bonds without incident even though at higher rates.

Italy's debt sale "looks better than the market expected because there were quite a few negative comments coming after the Spanish downgrade", said Achilleas Georgolopouos, strategist at Lloyds Bank in London.

"The 5.9 (billion euros) number is pleasing. Any number below five would have created a bit of a problem for them."

Michael Leister, DZ Bank strategist in Frankfurt, said the Italian bond auction meant that there was "at least no further bad news, nothing to provide further fuel to the sell-off we have had in periphery paper this morning".

The limited fallout from the Spanish downgrade elsewhere on world markets shows how much the now chronic euro government debt problems are largely in world prices.

European benchmark equity indices were higher on the day, with euro bank stocks and even Spain's main bourse up on the session too. World equities and emerging markets were also stable to higher and Wall St futures indicated U.S. stocks were set for a steady open.   Continued...

Traders look at computer screens at Madrid's bourse April 12, 2012. A jump in Italy's borrowing costs, reflecting growing concern about a revival of the euro zone debt crisis, put European shares and the single currency under pressure on Thursday. Italian officials have pointed the finger of blame at Spain, whose borrowing costs have soared since Prime Minister Mariano Rajoy ripped up a 2012 budget deficit target agreed with Brussels. REUTERS/Andrea Comas