Tags: euro | low | yen

Euro Falls to 10-Year Low Against Yen After Italian Bond Auction

Thursday, 29 Dec 2011 07:37 AM


The euro weakened to a decade low against the yen as Italy sold three- and 10-year government bonds. European shares were little changed and U.S. equity-index futures gained.

The 17-nation euro decreased as much as 0.5 percent versus the yen before trading at 100.39 yen as of 10:35 a.m. in London. Italian 10-year bonds fell, pushing the yield 12 basis points higher to 7.12 percent. The Stoxx Europe 600 Index slipped less than 0.1 percent and Standard & Poor’s 500 Index futures rose 0.2 percent. Gold declined to a three-month low.

Italy sold bonds due in 2014 to yield 5.62 percent, down from 7.89 percent at the previous sale on Nov. 29 and priced its 2022 bond to yield 6.98 percent, compared with 7.56 percent on Nov. 29. The European Central Bank said overnight deposits from financial institutions declined from a record high yesterday. Data today may show U.S. pending sales of previously owned homes rose for a second month, while initial jobless claims increased.

“The European problem is going to continue to cause spooks in the market and some spikes in risk aversion,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “The moves are exaggerated by the lack of liquidity.”

The euro slid for a fifth day against the yen and earlier reached 100.36, the weakest level since June 2001. The 17-nation currency slipped 0.4 percent to $1.2895 after earlier touching $1.2888, the lowest since Jan. 10.

ECB Lending

The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending. Overnight deposits at the central bank decreased from an all- time high yesterday, with euro-area banks parking 437 billion euros compared with 452 billion euros a day earlier.

“The ECB, for the foreseeable future, will not drain liquidity once per month as it always has done,” said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. “It gives you greater confidence that this is more formal quantitative easing. Both on an outright and a cross basis, the risks still do lie to the downside for the euro.”

Italian 10-year yields were little changed yesterday after the Treasury sold 9 billion euros of 179-day bills at a rate of 3.251 percent, down from 6.504 percent at the previous auction on Nov. 25.

German Chancellor Angela Merkel and French President Nicolas Sarkozy may meet on Jan. 9 in Berlin to discuss the debt crisis, the Wall Street Journal reported, citing an unidentified European Union official familiar with the situation.

European Stocks

The Stoxx 600 has dropped 13 percent this year, compared with an 18 percent slump in the MSCI Asia Pacific Index and a 0.6 percent fall in the S&P 500.

The MSCI Asian index was little changed today. A gauge of raw material producers posted the largest drop among its 10 industry groups. Lynas Corp., an Australian rare earths developer, slid 5.3 percent after the Chinese government said on Dec. 27 it will keep 2012 export quotas of rare earth virtually unchanged.

The gain in S&P 500 futures indicated the measure will rebound from yesterday’s 1.3 percent drop. Treasury 10-year yields were little changed at 1.93 percent. A report at 8:30 a.m. in Washington may show U.S. initial jobless claims climbed to 375,000 last week after falling to the lowest since April 2008 in the previous period, according to economists surveyed by Bloomberg.

U.S. Economy

Separate figures from the National Association of Realtors may say pending sales of previously owned homes rose 1.5 percent in November after a 10 percent jump the previous month. The Institute for Supply Management-Chicago Inc. will release its business barometer for December at 9:45 a.m. New York time.

Gold fell as much as 0.7 percent to $1,544.15 an ounce, the lowest price since Sept. 26. Oil in New York rebounded 0.2 percent to $99.56 a barrel after falling 2 percent yesterday. Cotton jumped 0.9 percent to 91.5 cents a pound, the third consecutive advance.

The MSCI Emerging Markets Index dropped 0.3 percent, extending this week’s losses to 1.9 percent. Russia’s Micex fell 1.4 percent as oil declined. Indian stocks dropped for a third day, with the Sensex sliding 1.2 percent. China’s Shanghai Composite Index advanced 0.2 percent, a second straight day of gains.

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