Member Article

Markets steady ahead of key bond auctions tomorrow

Despite preliminary data suggesting that Germany grew 3.0% in 2011 (compared to 3.7% in 2010),
data showed today that GDP contracted 0.25% in the last quarter of the year as Europe’s largest
economy grappled with the debt crisis plaguing the continent.

With the FTSE trading flat to marginally lower, sentiment took a step lower following comments
from Fitch. The head of sovereign ratings at the agency controversially stated that the ECB should
increase its bond buying campaign to prevent what he described as a “cataclysmic” collapse of the
euro. The comments evidently unnerved investors, the euro sliding against the dollar to another low,
and increasing appetite for safer government debt.

Highlighting the latter, today saw the auction of €1.53 billion worth of five year German notes which
averaged a yield of 0.90%. This was the first time on record that Germany had paid less than 1% to
borrow over five years, and with a strong bid to cover ratio indicated that investors were sacrificing
yield in return for capital security. It comes a day before key Italian and Spanish bond auctions which
will be closely watched by financial markets.

The FTSE 100 traded around 0.5% lower for most of the afternoon, a mixed picture in terms of
winners and losers suggested the market was in a “wait and see” mode ahead of the key bond
auction and ECB interest rate decision tomorrow. The index closed 0.45% lower, losing 26 points to
5670.

International Consolidated Airlines Group, the owners of British Airways and Iberia, was the best
performer with a 4% gain, followed closely by Lloyds and RBS with gains in excess of 3%. Man
Group was the biggest loser following a downgrade of its price target by Investec although the
analysts maintained their buy recommendation. Despite a target price well above current levels
and accompanying statements suggested that recent share price weakness was overdone, the asset
manager lost 3.5% to 104.5p by the close of trade.

This was posted in Bdaily's Members' News section by John Dance .