European Debt Crisis Worsens

25 November 2011 - Which Way to Pay

European Debt Crisis Worsens

In another sign of Europe's worsening crisis, two Italian debt auctions drew poor demand today, sending bond yields soaring and keeping investors on edge.

"We are fast running out of options," wrote Deutsche Bank strategist Jim Reid, in a client note. "The great hopes of the last few weeks for Europe have fallen one by one."

Italy sold €8 billion of six-month bonds at 6.5% and €2 billion of zero-coupon bonds, which have a maturity of up to two years, at 7.8%. Just a month ago, those same auctions drew yields of 3.54% for six-month bonds and 4.63% for zero coupon bonds.

The bond market reflected the continuing turmoil in Europe. Hungary’s 10-year bonds fell sharply in price, with the yield, which moves in the opposite direction, rising 54 basis points to 9.39 percent. Italy’s 10-year bonds were trading at 7.29 percent, up 23 basis points. Comparable Irish bonds, for which yields have recently begun rising sharply again, were up 13 basis points at 9.36 percent.