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German Bonds Hit New Low as Eurozone Flounders

Body blows to European economies continue to pummel recovery efforts throughout the Eurozone
By Gabe Kahn
First Publish: 5/29/2012, 10:29 PM

Madrid Stock Trader
Madrid Stock Trader
Reuters

German 10-year government bond yields hit new record lows on Tuesday as concerns over Spain's banking system and plummeting public finances fuel the Eurozone sovereign debt crisis.

Benchmark Bund yields fell as low as 1.347 percent, 1.7 basis points lower on the day. Bund futures hit record highs of 144.58.

The drop came as doubts grew over Spain's plan to recapitalize its banks and obtain finance for its struggling regional governments.

Madrid plans to recapitalize nationalized lender Bankia by issuing new debt, not by injecting bonds into the lender, as Spanish 10-year bond yields remain under 6.5%.

It was also reported Spain's government will ask the Treasury to issue and distribute debt to the regions under strict conditions of meeting deficit targets and implementing austerity plans.

Contrarily, US stock index futures opened higher on Wall Street, with expectations that new data on the economy will demonstrate American financial recovery remains on track.

Good news in America, however, was overshadowed by deepening euro zone debt crisis wherein bad news keeps rolling in.

The euro traded at $1.2530, not far from last week's low of $1.2495.

Rising concerns in the Eurozone about Spanish solvency added to uncertainty about the outcome of Greek elections in just over two weeks, and an Irish referendum on the EU fiscal treaty on Thursday.

Conservative parties in Greece who support remaining in the Eurozone have a slight lead in the polls, but the race remains tight.

Ireland is expected to approve the treaty, but there is widespread public anger over government austerity measures.

A pair of deadly quakes in Italy in the past ten days has briefly overshadowed fears that the Eurozone crisis is spreading to Rome.

Italian six-month borrowing costs rose to record heights since last December at auction on Tuesday at 2.104 percent.

The fresh concerns about the Eurozone also halted a small rally in European shares that was due to hopes of further policy stimulus in China.

The FTSEurofirst 300 was up 0.25 percent at 986.44, but Spain's IBEX was down 1.9 percent – hitting a nine year low.

Chinese media reported that the government might pump as much as $315.28 billion into the economy this year - well below $635 billion of stimulus it did in the wake of the 2008-09 global financial crisis.