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European Bonds, Currency Slide on Greek Concerns

Posted by Joseph Trevisani on May 11, 2015 12:42:00 PM

The euro fell to its lowest level in a week and Italian and Spanish government bonds dropped for the first time in three days as Greece's negotiations with its creditors have so far failed to find a solution to the long running drama with a 750 million euro payment looming tomorrow. 

Today's meeting in Brussels between Greece and the Eurogroup, composed of the regions finance minister, ended, as expected without any agreement. Though both sides cited progress, there will be no disbursement of the remaining 7.2 billion euros of bailout funds.

"We welcomed the progress that has been achieved so far. ...At the same time, we acknowledge that more time and effort are needed to bridge the gaps on the reamining open issues," noted teh official statement at the end of the meeting. 

Greek officials have said that it will make the IMF payment tomorrow though it is uncertain if the Athens has enough money to complete the transaction or where it will obtain the funds if it does not. 

The euro traded as low as 1.1131 against the dollar, having opened at 1.1197 and moved as high at 1.1207 in early Tokyo action.  Last Thursday’ top at 1.1392 was the highest the united currency has been in almost five months, since February 23rd. 

The yield on the Greek 10-year bond was at 10.96 percent today, up 3 basis points  but still almost 300 basis point below its 13.64 percent return on April 21st. 

Spain’s 10-year bond yield closed up eight basis points at 1.75 percent having fallen 23 basis points over the previous two trading days. Last Thursday’s the yield on the generic 10-year bond had traded as high as 2.00 percent, the highest since last November 24th, before closing at 1.75 percent. 

The equivalent Italian note rose nine points in yield to 1.77 percent. On Thursday the yields touched 2.02 percent, the most expensive since December 29th last year. 

The average yield on sovereign bonds in the 19 member European Monetary Union climbed to 81 basis points on May 6th. The return has almost doubled from its record low of 0.43 percent, reached in March, as the Greek crisis has eroded the confidence of the credit markets. 

European bond prices have tumbled even as the European Central Bank has pursued it 60 billion euros a month of asset purchases. In the week of May 8th the bank bought 108.7 billion euros worth of sovereign debt, covered bonds and asset-backed securities14 percent more than the previous week and the most since its program started in March.

The yield on the German 10-year bund, viewed as the euro region’s safest sovereign security, rose six basis points to 0.61 percent today, down from last Thursday’s high of 0.78 percent but a far cry from the record low of 0.049 percent reached on April 17th

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

eur may 11

greek 10 may 11

german 10 may 11

 

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