PARIS - France and Spain sailed through their first bond market tests since Standard & Poor’s downgraded their credit ratings last week, a sign politicians and central bankers have at least temporarily contained Europe’s debt crisis.
Worries about the 17-nation eurozone have receded since the start of the year, with stocks rallying consistently and bond yields - the rate countries pay to borrow - declining. Analysts warn, however, that a looming recession could hinder efforts to slash deficits.
Spain and France held successful short-term debt auctions earlier in the week. But yesterday’s auctions were for longer-term bonds and were considered the first real tests of market confidence in those countries.
Both easily hit their targets while the borrowing rates fell, an indication investors have largely shrugged off S&P’s decision to downgrade nine eurozone countries because of concerns over Europe’s ability to get a grip on the debt crisis.
The auction also boosted confidence in the region’s banks.
Shares in France’s Societe Generale soared 12 percent, Italy’s UniCredit 11 percent, and Deutsche Bank 8 percent. Germany’s Commerzbank jumped 12 percent after it said it would increase its capital cushions without government help.
Still, Howard Wheeldon, an analyst with BGC Partners, warned “time is running out’’ to find a solution to Europe’s problems, which he said lies only with increased support in bond markets from the European Central Bank. The bank has intervened only in limited ways, saying its mandate does not allow it to go on the kind of bond-buying spree the US Federal Reserve pursued.
Greece’s ability to avoid default is one of the main unresolved issues. The government this week restarted negotiations with creditors to persuade them to take at least 50 percent losses on Greek bonds.