Good US news, bad news from Spain

The better-than-expected US data dented safe-haven demand for US Treasuries, pushing yields back above record lows.

German debt prices rose after Spain’s treasury minister said the country’s high borrowing costs meant credit markets were closing to the eurozone’s fourth biggest economy. Cristobal Montoro made an appeal to the European Union to help Madrid recapitalise its debt-laden banks.

The Group of Seven finance chiefs agreed in a teleconference call yesterday to work together to deal with the problems besetting Spain and Greece, but the meeting had little impact on financial markets.

“Europe’s obviously a concern, but we’ve been selling off for weeks on that,” said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York.

“A slightly better than expected services number, which makes the majority of the US economy, is a sigh of relief in the face of a lot of bearishness.”

The pace of growth in the vast US services sector picked up a little in May as a gauge of new orders improved, according to an industry report released yesterday.

After the G7 finance ministers’ conference call, investors are now waiting for the ECB policy meeting today, Federal Reserve chairman Ben Bernanke’s testimony to the US Congress on Thursday, and the Greek elections and G20 meeting in Mexico which are both on the weekend of June 17.

Funding options are narrowing for companies across the globe, as issuers are shut out of markets due to risk aversion for weaker credits and demand for spread that is sending costs soaring.

Investors were disappointed that the G7 released no statement following the meeting.

“Their lips are sealed which tells us that they are either working on something big or failed to reach an agreement,” said Kathy Lien, director of currency research at GFT in Jersey City. “Spain has become as much of a problem as Greece and for this reason policymakers can’t leave things as they currently are for much longer.”