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Eurozone at Highest Debt/GDP Ratio for 12 Years

In trading on Monday, Spain’s bond market rose to a euro-era high. Jumping 25 basis points, Spanish ten-year bonds are currently at 7.52 percent. Earlier this year, the Spanish bonds market its previous record of 7.285 percent. The rise in the bond market comes as six different economic regions in Spain reported the possibility of asking for further funding over the weekend. With so many regions in debt and rising ten-year bonds, the Spanish government will have a difficult time avoiding a full scale bailout.

The rise in Spanish bonds is comes as a surprise for some investors. On Friday, the Eurozone’s finance ministers approved the decision to give Spain 100 billion euros in aid.

Eurozone Debt Increases

For the Eurozone as a whole, government debt is now at 88.2 percent of the area’s gross domestic product. Previously, the European Union’s debt load had been at 87.3 percent. This rise in debt is the largest since the euro was begun more than 12 years ago.

Spain had the third highest debt ratio to GDP. In comparison, Greece was at 132.4 percent of their nation’s GDP. Surprisingly, this is actually an improvement for Greece. Earlier this year, Greece was at 165.3 percent. Coming in second is Italy with debt of 123.3 percent of gross domestic product. This marks a rise of 2.2 percent for Italian debt.

In response to the European debt crisis, Greece’s creditors are meeting in Greece on Wednesday to decide how to deal with the bailout. Investors are uncertain whether Greece will be able to continue making its debt payments and the International Monetary Fund has hinted at an unwillingness to offer more financial aid.

With all of the news coming out of Europe, the euro dropped to its lowest level for 12 years versus the Japanese yen today. Against the greenback, the euro is down 0.4 percent to $1.2108. This marks a two-year low against the dollar. Europe’s currency is also down against the Australian dollar to a record low. Versus the Norwegian crown, the euro is at a 9.5 year low. Meanwhile, Europe’s embattled currency stands at just a 3.5 year low against Great Britain’s pound.

Yen Gains in the Day of Trade

The yen is performing well against a basket of currencies. In addition to appreciating against the euro, the yen has managed to gain against the dollar. The greenback is currently at a seven week low of 77.95 yen. In today’s most recent trade, the United States dollar was down 0.3 percent. The Vice Finance minister in Japan stated that the country was willing to do anything to keep Japan’s currency stable. Most market analysts believe that the central bank in Japan will not take action as long as the dollar is above 76 yen.

As a safe haven, the United States dollar and the Japanese yen have managed to stay strong throughout Europe’s debt crisis. The greenback was at a 19-month high versus the Swiss franc during trading on Monday.

Against the greenback, Australia’s dollar dropped 0.9 percent to reach $1.0278. The possibility of slowed growth in China has begun weighing on Australia over the last few days. Data from China showed a stable GDP for the second-quarter. Although the markets had hoped for higher numbers out of the world’s second-largest economy, the GDP was in line with expectations.

Rand Drops

With increased levels of risk aversion among investors, the South African Rand rand was at R8.4677 per United States dollar. On Friday, the rand had been at R8.2692 per dollar. Over in Europe, South Africa’s currency was trading at a rate of R10.2305 against the euro from Friday’s trade of R10.0260. The United Kingdom saw the rand change from Friday’s balance of R12.9076 to R13.1113. Most of the changes in the rand can be attributed to increased risk aversion in the marketplace. With the ongoing crisis in Europe, investors are scared away of riskier currencies.

Indonesia Holding Reserves in Yuan

The central bank of Indonesia has decided to start holding some of their foreign-exchange reserves. Amid debt concerns in the United States and Europe, the island nation has decided to diversify its foreign held funds. Indonesia joins a growing number of nations who have elected to hold their currency reserves in Chinese yuan. Government officials in China have been pushing for the yuan to take on a stronger role in international markets. Yuan denominated transactions now account for almost ten percent of China’s trade.  The yuan is currently at 6.3864 against the United States dollar. Overall, China’s currency is down 1.5 percent against the greenback for the year. 

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