Tuesday, September 11, 2012

Risk premium sees biggest weekly drop since the euro was created

Spain’s risk premium continued to narrow on Friday a day after the European Central Bank approved a new unlimited bond-purchasing program to ease the pressure on financially-distressed euro-zone.
The yield on the benchmark 10-year government bond fell below 6 percent for the first time since May and closed at 5.645 percent. That caused the spread with the German equivalent to fall by 37 basis points to 412. That came on top of a decrease of close to 50 basis points on Thursday. For the whole of this week, the fall was 141 basis points, the biggest weekly drop since the euro came into existence.
The blue-chip Ibex 35 index opened Friday’s session with a gain of 2 percent on top of the close to 5 percent it put on this Thursday, However, by the close it was up only 0.26 percent at 7,882.80 points as profit-taking set in.
“This is the first time the ECB seems to be gaining control of the situation,” Bloomberg quoted Johannes Jooste, a senior strategist at Merrill Lynch Wealth Management in London, as saying. “The initial market reaction suggests it has faith in Draghi.”
The more the risk premium falls, the more room the government of Prime Minister Mariano Rajoy has to put off the decision whether or not to seek a second bailout from the European rescue fund, on top of the up to 100 billion euros pledged by its European partners to recapitalize the country’s banks.

Read more: http://elpais.com/elpais/2012/09/07/inenglish/1347044896_986650.html

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