Vantage FX (http://www.vantagefx.co.uk/) provides a daily overview of the news activity and announcements currently shaping currency movements. Jay Mawji, the company’s head of market analysis, takes a look at news around the Eurozone bailout on 19^th January 2011.

“Bond sales in Spain were surprisingly well received despite Greece still begging investors and organisations to save them from another default.

The yield for Spanish 10year bonds fell over 1.5% from November last year with the February sale managing to raise the forecasted €3bn with a yield just below 5.5%. This is an incredible result considering the ECB has had to stand in and save previous Bond auctions from failure. There wasn’t too much optimism about the success of the bond sale, with European economies coming off a recent downgrade and Greece almost certain to force through a ‘haircut’ on private debt. The result of these auctions will bring much confidence to the Eurozone and the driving down of borrowing costs will certainly help to deal with debt issues.

Greece is still grappling with private investors to agree to writing off 50% of their debt. This is often referred to as a ‘haircut’ yet to private investors, this probably feels likes more of a ‘head shave’.  Talks have resumed again, focusing on the coupon (interest payment) that will be offered for a debt swap, with private investors understandably keen to force their hand and receive as high as a 4% coupon. Without agreeing this deal, Greece will struggle to stay afloat and remain in the European Union. If Greece becomes the first country to leave the Eurozone (it is the bookies favourite to go first) then they may find themselves in economic wilderness; a horrible place to be as a cold recession may be fast approaching.

The markets appeared to be focused on the Bond auctions in Spain, with a bullish European market reminiscing in ‘el sol’.”

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