2-year Italian bond yields reach a historical high of above 8%

The week opened relatively flat and we experienced no real movements in any of the key currencies.

Yesterday, the International Money Fund (IMF) crushed any market rumours of a bailout package for Italy. This added pressure to the mounting political uncertainty in the country, and resulted in 2-year bond yields rising above 8% for the first time in history.

Today’s 10 year Italian bond auction may force the nation to issue at above 7% yields, which were the historical trigger points for Greece, Portugal and Ireland when they were required to seek a bailout.

Christine Lagarde of the IMF will be heading to Latin America today, in order to strike a deal for more aid from the region, which could provide some sure funds for the IMF to assist Italy if the nation hits dire straits today following its debt issue.

The euro’s level of trading yesterday highlights cautious investor sentiment. Eurozone finance ministers, who are under extreme pressure due to the current debt crisis, are to meet today -Tuesday 29th- to discuss how they are to prevent the monetary union from dividing.

Both the IMF and Organisation for Economic Cooperation and Development (OECD)  have applied pressure to the Eurozone’s current predicament, by issuing urgent warnings prior to the meeting. The institutions have stressed that decisive action is critical at this point if a global economic meltdown is to be avoided, thus highlighting that the potential fragmentation of the eurozone has now become a clear concern at the highest levels.

While it is universally known that political and economic turmoil underpins the eurozone, the markets are unsure what the outcome of today’s discussions will lead to in the imminent future. 

Our best predications are that political uncertainty will remain unabated. Until any discernible decisions are made on Italian debt, the future of Greece in the EU and Germany’s willingness to support debt-laden countries, the euro will simply continue to appreciate or depreciate based on relevant market data on a said day of trading.

US new home data

Lower than forecast, US new home data released saw the USD depreciate just past 3pm, however the currency rebounded to close the day unchanged. Evidence of a slight decoupling trend between the Eurozone and Americas is fuelling positive results for the greenback, indicating that the US may not be as affected by a recession in Europe.

Economic data

  • UK consumer credit
  • UK mortgage approvals (Oct)
  • European Monetary Union (EMU) Economic and Consumer confidence (Nov)
  • US Consumer confidence (Nov)

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