The Names Bond, Unfortunately High Level Spanish Trading Bond

28 June, 2012

It is seen as much needed news for the UK economy, especially with BoE Governer Mervyn King claiming that Britain’s economic outlook had worsened markedly, so at this point any positive news helps sterling rates remain strong against the flagging Euro. Yesterday, Spain’s Prime Minister announced that the country cannot afford to finance itself for long at current rates. More bad news for Spain as their central bank announced that the nation’s recession has probably deepened in the second quarter of the year. Will we see Spain crashing further into recession and joining Greece at the bottom of the pile? Quite possible, as yesterday Spanish 10-year government bonds were trading at yields above 6.8%, coming dangerously close to the 7%, which is considered unaffordable. Italy is having similar bond woes, with the nation selling 9bn euros of six-month bonds with an interest rate of 2.96%, up from the 2.10% they were last year. The issue is likely to be brought up at this weeks European Summit, which the markets are holding their breath for. Unfortunately for us, sterling is closely tied to the Euro, so sterling rates haven’t been moving very much over the past couple of days. However, this could be seen as a positive thing, as analysts predict more QE. As it stands, the rates for exchanging sterling to euros stand near a 4 week high. Anyone looking to transfer sterling to euros in the near future should be aware that the announcement of more QE has the potential to weaken sterling significantly. Not much news across the Atlantic either, although sterling was down 0.15% against the US Dollar. The American economy seems to be improving, albeit slowly, with the announcement that house prices rose slightly in April, leading some analysts to believe that US citizens now have more money to spend. The lack of certainty over the news, however, has prevented the dollar from making any significant gains against either sterling or the euro. Anyone looking to transfer dollars to America should remember the same information as those looking to transfer to the Eurozone – the announcement of QE, or any major news from the Euro summit, could weaken sterling’s position considerably. Despite not following the football, I understand Portugal have been knocked out by Spain. I dare say (like Greece before them) that the Portugese government will breathe a sigh of relief about not having to finance their football team any more. No doubt Angela Merkel, a well known football fan, will be closely watching Italy vs Germany tonight, as long as the EU summit doesn’t get in the way. With Germany (apparently) being one of the favourites, it does seem somewhat ironic that the powerhouse of the European economy is proving to be just as strong on the football pitch. With Germany sustaining the economy of most of the Eurozone, it seems unlikely that any nations knocked out by them will hold any hard feelings. But then, as I said, I don’t understand football.