Governments around the world need to raise capital to pay bills and one of the largest ways they do this is by offering bonds. These bonds are similar to bonds offered by banks to members of the public however government bonds are of much larger volumes and are only purchased by banks, other countries and large institutions. To entice investment a return needs to be offered and this changes dramatically dependant on the situation and strength of that country. In the past when this level breaches 6% countries have needed a bailout from the IMF, ECB and IMF. As a result when countries like Italy, Spain and Portugal have to offer a higher return, people get worried and the euro gets cheaper to buy.
Why is this important?
Well due to the concerns across the Spanish banking system their bonds have climbed to a record high. Bankia bank in Spain, the fourth largest bank in Spain, have requested a further bailout of €19 billion and the market has estimated it holds over €32 billion worth of bad debt. Spanish 10 year bonds climbed to their highest point since records started against Germany. A shocking 5.05% is the difference and it again makes everyone ask, how is Spain going to get back on the road to recovery? Why does it continue to get worse?
For information on how this could change markets and the data due this week keep reading… Also bear in mind that if you have a deadline to trade then the two bank holidays in a weeks’ time may prevent you trading anywhere in the UK but the currency markets will still be moving. Protect yourself by speaking to a currency specialist this week and ask for information about stop loss or limit orders during this period. Call on (+44) 1494 787 478. or email [email protected]