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European Union: Spain made one of its major ever bond sales at a record low rate

2015/01/22

Investors piled into peripheral eurozone deficit yesterday ahead of the European Central Bank’s widely expected launch of large-scale bond purchases, even as political resentment mounted over German attempts to water down the programme.

Spain made one of its major ever bond sales at a record low rate, drawing investor orders of close to €23bn from around the world. Last year, Spain paid close to 4 % to borrow money for 10 years: yesterday it paid 1.66 %.

Expectations that the ECB will tomorrow launch quantitative easing have driven up request for government bonds in the eurozone, pushing yields down to historic lows. Nations in the periphery have moved to take chance by locking in the low rates.
As investors cheer, politicians and bankers across Europe are expressing mounting frustration over a key concession the ECB is set to make to mollify German opposition to the QE plan.

The expected announcement by Mario Draghi, the ECB president, will bring the bank closer into line with the US Federal Reserve and the Bank of England, which adopted QE in the wake of the financial crisis. But QE has split the bank’s 25-strong governing council, with both German members voicing opposition in recent weeks.

To appease QE’s German opponents, which include the chancellor Angela Merkel herself, Mr Draghi is expected to say that bonds bought will remain with national central banks, so losses will not be spread part eurozone members.

But other eurozone nations, inclunding the International Monetary Fund, fear the concession could reduce QE’s effectiveness.

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