Bond auctions calm euro zone fears after Dutch government collapse

Better-than-expected government bond auctions in Europe are providing some comfort to those worried about a resurgent euro zone debt crisis after the Dutch government collapsed in the face of austerity talks this week.

Successful auctions were reported Tuesday in the Netherlands, Spain and Italy, sending the countries’ bond yields on an overall downward trajectory. According to the Financial Times, the Netherlands sold 1 billion euros in notes maturing in 2014 at yields of 0.523 per cent, while Italy auctioned off 2.5 billion euros of 2014 debt at 3.35 per cent. For its part, Spain sold 1.9 billion euros of three month and six month bills.

“This is a good result in the circumstances. It looked bad yesterday but they managed to sell this in a couple of minutes,” an Amsterdam-based bond trader who declined to be named told Reuters.

Despite the good news, Société Générale analysts are warning that the collapse of the Dutch government led by Prime Minister Mark Rutte could lead to a credit rating downgrade, and have dire consequences for the monetary union:

The political vacuum left by Rutte’s cabinet and the sombre IMF analysis of the country’s public finances, mean that a downgrade is more likely than not by the time the next government is sworn in. . . There are [also] wider implications in that it shows how the battle over fiscal control and the implementation of austerity has intensified.


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