Impacts on Different Countries as Euro-Area Slips into Recession

Economy of Spain has contracted in the 3rd quarter of 2012, thereby pushing it into recession, according to a Euro-area report. The Spanish bonds have gone down and hence the 10-year yields of this European country have reached to the highest level in last six weeks. The 10-year yields have climbed up for the 4th straight week now and since June; this marks the longest run in increase. The 10-year yield is now at 5.87%, increasing by 5 basis points. The Government of Spain, incidentally, has decided not to ask for any sort of aid from the Outright Monetary Transactions Program of European Central Bank.

On the other hand, the 2-year yields for Germany was below zero throughout the last week. It was at -0.34%. This indicates that the investors holding the security will receive less money than what they paid to buy the same. Germany actually sold the securities at a negative rate for the very 2nd time on 14th November, after doing the same on July, 2012 earlier.

Norbert Aul, who works as a rates strategist at Royal Bank of Canada said that the Euro area is already under recession technically and this was expected to happen one day or the other. He mentioned that the Spanish Government has put soft pressure on the bonds as it is still not showing interest in asking for an aid.

After experiencing a 0.2% decline in the previous 3 months, gross domestic product in the Euro area has dipped another 0.1% in this year’s 3rd quarter. These statistics were released by the Luxemburg office of The European Union.

As far as Spain’s economy is concerned, it shrank by 0.3% this financial quarter. This marks the 5th straight quarter for the country’s economy when it contracted. On the other hand, Germany’s economy has expanded by 0.2%.

At an average yield of -0.02%, the German Government has allotted around 4.3 billion Euros of securities which matures in December, 2014. The record low auction yield is of -0.06% and it was set on 18th July, this year. The 10-year bund yield for the country is at 1.33% as it reduced from 1.31, as it was on 13th November. This is the lowest value for this yield since 31st August. The rate actually dropped by 2 basis points since 9th November. This marks the longest run of declines since last June (Weekly Fall for 4 straight weeks). On 21st November, Germany is going to sell 4 billion euros of the 10-year bunds. The very next day, Spanish Government will go ahead with an auction for securities to mature between 2015 and 2021.

Till 15th November, German bonds have returned 4% in 2012. The securities of Spain gained 2.1%. Italy’s securities also earned 18%. These statistics were released by the European Federation of Financial Analysts Societies.

On the other hand, Greece has been given a slight relief in its bailout program. The country can take 2 more years to reach the already set budget-deficit goals. This will result into a funding gap and on 20th November, the Finance Ministers of different European countries will sit to discuss that how that gap can be plugged.

In November, the index marking the Euro-area manufacturing output and services decreased and this now is the 10th consecutive month of this happening. The index is in 45.9 for November and was at 45.7 last month. The survey was done by the London-based company Markit Economics and the official report is scheduled to come out on 22nd November. Incidentally, if the reading is anything below 50, that denotes contraction.