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Spanish Bonds Rise Over 6.8 Percent

Spain’s borrowing costs have now risen to their highest since the start of the euro. Ten-year government bonds are now at 6.834 percent. The rise in Spain borrowing costs comes just days after Spain was given a bailout package totaling 100 billion euros. Eurozone finance ministers are attempting to shore up the markets and increase investor confidence in the euro.

According to Bloomberg, Spanish borrowing costs are now at their highest since the start of the euro. Insuring Spain against a potential default has now risen to a record high.

In response, Fitch Ratings downgraded the credit ratings of 18 different banks in Spain. Fitch believes that Spain will be in a recession for the rest of 2012 and part of 2013. By the end of 2013, Fitch Ratings expect the economy in Spain to benefit from a mild recovery. The new 100 billion euro rescue plan has not changed Fitch’s negative outlook for the economy. Part of the issue Europe is now facing is caused by investor sentiment. Although the bailout will help out Spanish banks, investors are afraid of what implications a bailout has.

The head of the International Monetary Fund called European leaders on Tuesday to deal decisively with the financial crisis. Christine Lagarde is advocating a policy that promotes stability and growth in the region.

In Italy, the bond market has been slowed down over the Eurozone crisis. Earlier this year, Italy was one of the better markets in Europe. On Tuesday, ten-year bonds climbed to 6.22 percent.

Over in Greece, elections are set to occur on Sunday. Depending on which party is elected, a potential Greek exit is still possible. The New Democracy party is currently in favor of sticking to the bailout plan and austerity measures. If they are not elected, Greece may choose a different route out of their crisis.

Hong Kong Pegs Their Currency

The new Chief Executive of Hong Kong’s Monetary Authority, Norman Chan, stated yesterday that the government will continue to peg their currency against the dollar. The former chief, Joseph Yam, had suggested linking the currency to the dollar should be questioned by the country. Currently, Yam is the highest ranking official to question pegging the Hong Kong dollar to the United States dollar.

After Yam’s statement, the Hong Kong dollar rose 0.09 percent. At its highest, the Hong Kong dollar traded at $7.7586 yesterday. This markets its strongest level since February 22, 2012. Yam suggested yesterday that the country’s currency become pegged to the Chinese yuan. In Hong Kong, one-year currency forwards rose 0.06 percent to HK$7.7457.

The Hong Kong currency was originally created in 1983. Since that time, the Hong Kong dollar has been pegged at HK$7.8 per United States dollar. By 2005, the country’s policy makers decided to set the currency to limits between HK$7.85 and HK$7.75 per United States dollar. In this time period, China chose to end its peg against the dollar. Instead, it chose to set the exchange rate against a basket of currencies. After that move, the Chinese yuan strengthened 30 percent more than the American dollar.

Donald Tsang, the leader of Hong Kong, stated last November that the currency would remain pegged to the dollar until China’s currency became easily convertible. China has stated that they are working to make the yuan fully convertible by 2015.

Remaining pegged to the United States dollar has been rethought in recent months. The United States currently has an unemployment rate of 8.3 percent as well as interest rates close to zero until 2014. With such as shaky economy, remaining pegged to the United States dollar is a questionable choice.

A Volatile Day of Trading

In trading yesterday, the Euro rose against the dollar and the yen. Gains could have been higher by the euro if it had not been hindered by the Spanish bailout. Investors were frightened away from further gains by rumors of Greek preparations to leave the Eurozone and issues with the Spanish bailout. The euro traded last at $1.2482 which makes it up 0.1 percent for the day.

After the International Monetary Fund stated that the yen was overvalued. As a result, the yen dropped to 79.42 yen per dollar. The dollar rose 0.03 percent against the yen. 

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