Spain to test investor's nerves, again

by Paul Wilson | Saturday, Apr 14, 2012 | 439 views

Safeguarding the economies across the globe from the negative effects of the euro debt crisis will be the primary agenda of the IMF’s meeting at the end of week even so when the earnings season triggered up hopes of improvement in the markets.

Issues like French Presidential election and the data for the month of March on retail sales and industrial output is also likely to effect the markets but the key to the sentiment of the investors will  be the debt markets .

Given that the leverage hasn’t been dealt with nut has been just passed on to the sovereigns , macro factors are likely to dominate. Even though there have been cuts in the household and non0finacial sector debts but they have been equally matched by the rising government debts in majority developed nations , an analysis of the bond markets revealed.

After the European Central Bank withdrew its cash influx , even though there are chances of resuming the programme of  bond-buying , it has put the spotlight back on Spain and Italy whose debts magnitudes are capable of challenging all the rescue funds of the region.

Italy has managed to win back some credibility , but Spain is constantly losing it . The weak public finances , fragile banks and the scale of downturn  ; all are feeding on each other in Spain thereby not letting it come out of the crisis.

The yield on ten year Spanish Bonds  was nearly 5.85 % while that of the Italian bonds was close to 5.43 % .

Germany in the meanwhile will test the markets for demand  of low yielding but high safety bonds with a planned sale of two year bonds. Germany had , earlier this week , sold 10-year government bonds with a surprisingly low yield  1.77 percent but the bids didn’t meet the offered amount.

With the ever mounting problems in Spain and the Greece still struggling to avoid further  bailouts , German bonds might just offer the safety band protection they are looking for. The Bunds are likely to loose some of their creditworthiness given more bailouts are likely to follow and the doubts over the future of single currency might just make the investors to shun euro assets completely.

IMF on the other hand is busy generating the fund which is estimated between $400 billion to $500 billion down from the earlier estimate of $600n billion. The money shall help the IMF the ability to deal with the sovereign debt crisis  emanated out of the unsustainable policies in the euro zone countries of Greece , Ireland and Portugal.

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