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Markets poised for multiple eurozone downgrades

The results of a fairly important Italian bond auction were mixed this morning. A major positive
was that the average yield came in at 4.83%, compared to 5.62% in November. This was however
offset somewhat by a low bid to cover ratio, the latter signalling that there was weak demand for
the €4.75 billion worth of debt. Whilst not exactly contrasting with the impressive Spanish bond
auction yesterday, it was certainly less successful and hinted towards lower appétit for longer dated
government issues, something which is causing concern due to the significant amount of debt Italy
has to roll over this year.

With markets in Europe trading marginally higher, there were rumours in the afternoon that S&P
could imminently deliver several Eurozone downgrades at sometime today. These were widely
expected after the market close and follow previous warnings by the agency that 15 out of the 17
member euro nations were on downgrade watch. The euro fell below $1.27 and whilst specifics
were not forthcoming, it was suggested that France’s AAA rating was at risk although Germany
would not be among those downgraded.

The news brought what had otherwise been a relatively positive week to a rather pessimistic close
reminiscent of the turbulent 2011. The FTSE 100 ended the day down 0.5%, recovering from its lows
around 5583 to finish at 5636 points.

RBS was the biggest gainers on the index with a 4.8% gain, closely followed by Barclays at 4% as UK
banks were beneficiaries of safe haven appeal amid potential eurozone downgrade’s that would
disproportionally affect their more exposed and less capitalised European peers.

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