German government bonds are sharply higher Monday saving reversed opening losses as initial euphoria over Greece election results fades and jitters surrounding Spain increase. Whilst an immediate risk of leaving the euro has been avoided in Greece following the narrow victory by the pro-bailout party New Democracy (ND), most traders agreed that many challenges remain, which includes forming a workable coalition government within the next 3-days. Bunds reversed losses as the yield on Spain’s 10-year Bono broke decisively above 7.00% — hitting fresh EMU record high at 7.13% and the 10-year yield spread continues to extend widening to fresh record high at +569bps. Traders noted a story in El Confidencial saying that the 2 independent auditors — Oliver Wyman and Roland Berger tasked with calculating the Spanish banks capital needs say that the total capital requirement may be as much as E150bln — once higher provisions for retail mortgages are included. This is in addition to real estate, business and consumer loans and above the E100.0bln recapitalization aid offered by the EU.
EasyForexNews Research Team