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Saturday, July 21, 2012

European Jiujitsu Bruises Spain Bond Market

Europe Simulator
Europe Simulator (Photo credit: wigu)
European leaders appear to have unwittingly mastered a form of reverse financial jiu-jitsu, the martial art that encourages practitioners to use an opponent’s strength against himself.
How else to explain the massive damage done to the country’s debt markets on Friday? Euro-zone finance ministers approved a bailout plan designed to recapitalize the country’s ailing banking sector.  Then Spain’s 10-year bond yield jumped more than a quarter of a percentage point to more than 7.20%, setting a euro-era high. The two-year yield soared more than half a percentage point. The spread between Spanish and German 10-year yields stretched to more than 6 full percentage points. Read more on Europe Markets.
The reaction, particularly at the shorter end of the curve, had more than a whiff of panic about it, strategists said.
Granted, conditions weren’t helped by the Valencia regional government’s decision to seek a bailout from the central government. But economists said uncertainty over the bank bailout was likely a bigger factor. ... Continue to read.
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