CORRECTED – EURO GOVT-Investors target euro zone’s weakest links

(Corrects first paragraph to read … forcing premiums on
Spanish and Italian bonds … correcting Portuguese to Italian)

* Periphery under pressure as debt concerns snowball

* Spanish, Italian, Belgian spreads hit euro lifetime highs

* Portugal to auction T-bills on Wednesday

By Amanda Cooper

LONDON, Nov 30 (BestGrowthStock) – Investors punished the euro
zone’s more fragile members on Tuesday, forcing premiums on
Spanish and Italian bonds over their German counterparts to euro
lifetime highs as Ireland’s bailout failed to quell fears more
lifelines will be needed.

The euro (EUR=: ) fell below $1.30 for the first time since
September as the market focused on which euro zone economy might
be the next to seek help, drawing investor fire towards Spain
and Italy, but also Belgium.

“There is a sense of panic, a lack of confidence, as far as
the European government markets are concerned,” said Cyril
Beuzit, head of fixed income at BNP Paribas.

“The question is how far this lack of appetite for
government bonds can last,” he said, adding: “We are probably in
for further stress on the periphery because Portugal is still an
issue and the big question is Spain.”

Spanish 10-year yields (ES10YT=RR: ) rose for an eleventh
consecutive day by 10 basis points to 5.594 percent, on track
for their largest monthly rise in nearly 20 years, according to
Reuters data.

The difference in yield between Spanish debt and German
Bunds rose 43 basis points on the day to 312 basis points, the
highest since the euro was introduced in 1999, while the cost of
insuring Spanish debt against default also rose.

“It’s very worrying because Spain is almost too big to be
bailed out … whereas Italy is too big to be bailed out,” said
Everett Brown, European bond strategist at IDEAglobal.

“There’s not much more that officials could do at the
moment, so if spreads keep widening, it raises the small risk of
the euro zone breaking down. After the past few years we can’t
rule anything out … It’s a bit ominous.”

Portguese 10-year yields (PT10YT=TWEB: ) fell from a peak
above 7.3 percent to settle about 12 bps lower on the day at
7.114 percent, with traders attributing the retracement to
European Central Bank buying of the debt. The 10-year Portuguese
bond yield spread to Bunds fell to 450 basis points, four bps
less on the day.

Meanwhile, Belgian 10-year yields (BE10YT=TWEB: ) rose for a
fifth day to their highest in nearly 18 months, while the spread
to Bunds hit a euro lifetime high of 149 bps, reflecting
investor discomfort with the nation’s exposure to the Irish,
Spanish and Portuguese bond markets, BNP Paribas’ Beuzit said.


Markets are taking the view that Lisbon will be unable to
avoid tapping European Union/International Monetary Fund rescue
funds. Benchmark 10-year German Bund yields (DE10YT=TWEB: ) fell
eight basis points on the day to 2.616 percent, while Bund
futures (FGBLc1: ) rose 95 ticks to settle at 128.02.


Euro zone struggles with debt

Peripheral economies compared

Euro zone CDS curves


Portugal’s central bank warned overnight that the country’s
banks face an “intolerable risk” if the government in Lisbon
fails to consolidate public finances.

Italian 10-year yields (IT10YT=TWEB: ) briefly rose close to 5
percent and were set for their biggest one-month rise since
September 1994, according to Reuters data.

“While one can rationalise uncertainty over the outlook for
Spain, coloured by Irish banking problems’ impact on the
sovereign, the widening of spreads in Italy is more alarming,”
said Lloyds TSB strategist David Page.

“Deterioration here is suggestive of a more widespread
de-risking associated with contagion, than a rational assessment
of country risk. Italy is also the euro zone’s largest
government bond market. Markets no longer seem able to suspend
disbelief in the validity of the overall euro project,” he said.

Sentiment towards the periphery will be further tested when
Portugal sells treasury bills on Wednesday and Spain sells up to
2.75 billion euros of 3-year bonds (ES0000122R=: ) on Thursday.

CORRECTED – EURO GOVT-Investors target euro zone’s weakest links