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Europe steadies and demand remains solid despite Italy vote

Europe steadies and demand remains solid despite Italy vote

The euro, shares and bond prices steadied on Wednesday after solid demand at an auction of Italian government debt helped calm fears that political stalemate in Rome could reignite the debt crisis.

Though paying more than half a point more interest than before the vote, Italy sold all 6.5 billion euros of the 5- and 10-year bonds it offered investors two days after an election offered no party a majority and renewed concern over its finances. It could have chosen to sell less.

Italian bonds and European stocks briefly rose after the sale. Bonds of other euro zone countries suffering concern over their creditworthiness were also helped.

"A very strong auction on all accounts, both when you look at the demand side and the pricing side. The Tesoro filled the maximum amount, with 4 billion allocated in the new 10-year, which is very strong." said Michael Leister, a senior bond strategist at Commerzbank in London.

The relief over Italy was somewhat offset by data from the European Central Bank which showed bank lending to euro zone firms contracted for the ninth month in a row in January despite its record low interest rates.

Separate figures also showed savers and firms in Cyprus, another of the euro zone's members now in crisis, had rushed to pull their money out of the island's banks last month as its problems intensified.

"Although euro zone banks' liquidity positions have improved overall since early 2012, it is clear that this has had little effect in boosting private-sector lending," said IHS Global Insight economist Howard Archer.

"It is also evident that the ECB's decision to cut its deposit rate to zero from 0.25 percent last July has done little to encourage banks to lend more to the private sector."

The euro zone jitters were balanced by Federal Reserve Chairman Ben Bernanke's defense on Tuesday of the U.S. central bank's monetary stimulus, which eased financial market worries over a possible early retreat from its policy of bond purchases.

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