- Risk appetite higher as worries over Italy ease
- The tone eases a bit in the fiscal cliff negotiations
- Greece conclude bond buy-back paving way for aid payment
- At today's Fed meeting we expect a rise in asset purchases of USD 45bn
Risk appetite was strong yesterday
as tensions in Italy eased. Italian 10-year bond yields declined 10bp and stock markets in Italy and Spain outperformed their peers in Europe. The improvement was likely triggered by the strong support for Mario Monti from many sides on Monday and the encouragement of him to run as prime minister in elections early next year. Eurostoxx 50 had the highest close since 2011 and S&P500 rose 0.7% reaching the highest level in a month.
The tone softened a bit in the fiscal cliff negotiations yesterday as President Barack Obama and House speaker Republican John Boehner exchanged new proposals – see Reuters. As the deadline nears it seems that the parties are moving back to the table, leaving the hard rhetoric behind. A fresh Bloomberg poll shows that Obama has backing from almost 50% of Republicans for raising taxes on the most wealthy.
According to unofficial sources Greece received an offer of EUR 32bn in its bond buy-back programme, paving the way for an aid payment from EU and IMF. However, Greece did not get a high enough price to reach the projected revenue, which implies it will not be able to reduce its debt as much as eurozone leaders had projected. Greece is 1.5 percentage points short in debt relief but IMF is not expected to delay its part of the aid payment.
In the FX markets EUR/USD staged a further rebound yesterday going above 1.30 again. The rise in EUR/SEK faded a bit and has been stable overnight, whereas EUR/NOK has edged a bit higher.
US 10-year bond yields increased moving in tandem with overall risk appetite. Two-year yields are broadly flat and hence the yield curve has steepened a bit.
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