Bloomberg News

French, Belgian Bonds Drop on Dexia Concern; Italian Bonds Slide

November 23, 2011

Nov. 23 (Bloomberg) -- French and Belgian government bonds fell for a third day after De Standaard newspaper said Belgium is seeking to negotiate the break-up plan for lender Dexia SA.

Italian and Spanish securities also dropped amid concern a new credit line announced yesterday by the International Monetary Fund wouldn’t be big enough to support the nations, were they to request aid from the facility. German bonds rose before a report that economists said will show European manufacturing and services shrank in November, adding to signs global growth is slowing. Germany will sell as much as 6 billion euros ($8.08 billion) of 10-year debt today.

The report on Dexia “is weighing on both sovereigns and in some ways it has greater ramifications for France than for Belgium,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. For the IMF facility, “the amount you can tap will be far too small be of any benefit to the likes of Italy.”

The 10-year French yield climbed nine basis points, or 0.09 percentage point, to 3.62 percent at 8:48 a.m. London time. The 3.25 percent bond maturing in October 2021 fell 0.68, or 6.80 euros per 1,000-euro face amount, to 96.980.

The rate on similar-maturity Belgian debt climbed nine basis points to 5.16 percent. The difference in yield, or spread, between 10-year bonds in Belgium and Germany reached a record 322 basis points.

Liquidity Line

The Washington-based IMF said yesterday its new instrument, the Precautionary and Liquidity Line, can be tapped by countries with strong economies currently facing short-term liquidity needs. Funding will be capped at a percentage of countries’ contributions to the fund, limiting the role the instrument can play in preventing the debt crisis from spreading in Europe.

The yield on German bonds maturing in September 2021 fell one basis point to 1.91 percent. Italian 10-year rates climbed nine basis points to 6.91 percent, and Spanish yields increased five basis points to 6.65 percent.

German bonds have returned 8.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French bonds have gained 0.9 percent and Belgian securities have dropped 3.3 percent, according to the indexes.

--Editors: Nicholas Reynolds, Mark McCord

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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