Risk rallies on Spanish auction outcome
What happened overnight
– Spain issued bonds successfully, yet at lower bid to cover ratio
– Australia employment disappoints
– Japan econ minister Amari retreats on yen weakness comments
– Copom unchanged at 7.25%, maintains neutral stance
The Euro and currencies geared to Europe performed well on the day, supported by the successful outcome of Spain’s bond offering. The Kingdom sold 2015, 2018 and 2041 bonds to healthy demand, recording, however, a slightly lower average bid-to-cover ratio compared to last week’s auction. EURUSD rallied from an overnight low of 1.3270 to 1.3371, supported by a selloff in front-end German rates, driving the two-year Germany-USA rate differential to a nine-month high of 0.34%. Peripheral rates markets are also reacting positively to the auction results, but without any outsized gains, suggesting the market was positioned for a strong outcome.
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Credit Suisse