1. EU Summit Starts with Small Goal – Future Permanent Mechanism: The EU Summit is here and so far it seems there will be a minimalistic approach, centered around making sure there is a permanent mechansims to support countries with financing past t2013, the expiration of the current EFSF (European Financial Stabilization Fund).
EU governments are close to agreeing on a two-sentence amendment to the bloc’s Lisbon Treaty foreseeing a “mechanism to safeguard the stability of the euro area as a whole” with financial aid for distressed governments “subject to strict conditionality,” EU officials told reporters in Brussels yesterday.
The Lisbon Treaty is the EU’s equivalent of a constitution, binding on EU institutions in Brussels and on national governments’ handling of European affairs. All 27 countries, including the 11 outside the euro region, would need to ratify the amendment. So while that’s important, it doesn’t seem more action on the sovereign debt situation will be taken.
Germany is resisting the idea of retooling the support facility (EFSF ) to buy troubled governments’ bonds and is “allergic” to the idea of joint Euro-bonds.
On Germany’s side, they failed to will not be able to get a reference to possible costs for bondholders enshrined in the treaty and is virtually alone in pushing for the amendment to say that any financial assistance will only be offered as a “last resort.”
The EUR/USD found support at 1.32 and has been consolidating yesterday’s sharp move. USD was weaker across the board.
2. Spanish Borrowing Costs Jump in Auction Sale – Staying within Europe, Spain held an auction for its bonds, only days after Moody’s placed Spain on downgrade watch.
1. Spain’s Treasury sold 2.4 billion euros ($3.2 billion) of bonds, less than its maximum target, as borrowing costs surged.
2. The nation sold 1.78 billion euros of 10-year bonds at an average yield of 5.446 percent, compared with 4.615 percent last time the securities were issued on Nov. 18.
3. It also sold 618.7 million euros of 15- year debt at 5.953 percent, compared with 4.541 percent when the paper was last sold on Oct. 21.
4. Demand for Spanish 10-year bonds was 1.67 times the amount sold, compared with 1.84 at the last auction on Nov. 18, the Bank of Spain said. The bid-to-cover ratio for the 15-year bonds was 2.52 times, compared with 1.44 times at the October auction.
5. Portuguese, Greek and Spanish bonds slipped today.
The highest yields in pain since the euro-era was the reason Moody’s said it may cut the country’s Aa1 rating as public and private refinancing needs next year make it “susceptible to further episodes of funding stress.”
FOREX-Euro climbs before EU summit, dlr cedes ground
The euro hit the day’s highs after results from an auction of Spanish 10-year and 15-year bonds on Thursday, a day after ratings agency Moody’s said it could downgrade Spain’s rating. The auction resulted in higher yields but solid bid-to-cover ratios.
“Spain is not in a situation where it would have trouble servicing its debt, so the auction saw enough demand,” said Lutz Karpowitz, senior currency strategist at Commerzbank in Frankfurt. But others added the higher yields indicated continued wariness about euro zone debt.
These developments – small steps by EU leaders – and higher yields for Euro-zone periphery government debt makes me doubt the EUR, and a strategy going forward would be to sell the rallies.
As EU leaders decide to wait and see, the market will get very choppy in January when many European governments have to come to the market and sell debt.
http://www.fxtimes.com/
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