Peripherals ignore central bank inaction

Positive news on eurozone sovereigns helped the current rally in risk assets continue today, in spite of yet another month of inaction by the region's central banks.

S&P announced that it had revised its outlook on Portugal's BB rating to stable from negative, highlighting the likelihood that European official lenders would extend the maturity of their loans to the country. The rating agency also expects the EU to grant Portugal more leeway on fiscal consolidation, which should benefit economic growth.

The announcement from S&P was welcome news for Portugal. However, it didn't come as a great surprise to the market. It was all but inevitable that Portugal would be given more headroom, with Germany and others hinting on several occasions in the past that additional support would be forthcoming.

Portugal's CDS spreads tightened 10bps to 373bps today, a negligible move compared to the 800bps rally over the past year.

Neighbouring Spain provided a further boost on Thursday morning, As the sovereign managed to sell €5.03 billion in debt, just above the top end of its target range. The yield on the 10-year bond was 4.917%, the lowest since November 2010, while the 3.572% yield on the five-year issue was the lowest for nearly two-and-a-half years.

Demand was strong for all three issues - there was also a 2015 bond - and, overall, it was an impressive performance given the lingering uncertainty in Italy. Spain's CDS tightened 4bps to 262bps.

Peripheral eurozone sovereigns have, of course, benefited from the implicit support of the ECB. But the central bank, at its monthly meeting today, refrained from easing monetary policy, despite the expectations of many in the market. A cut in the refinancing rate was discussed, but the 23-member council failed to meet agreement.

The slight disappointment was offset by Mario Draghi reiterating that policy would remain "accommodative". The Bank of England also sat on its hands, but its decision had little impact beyond the currency markets.

Risk appetite in the corporate world was maintained throughout the day, with the Markit iTraxx Europe 3bps tighter at 108.5bps. Dutch telecoms firm KPN came to market with a hybrid debt issue - part of its recently announced capital raising - but there was little other corporate news.

Results for stress tests on US banks could influence sentiment tomorrow, though it is likely that the day will be dominated by non-farm payrolls.

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