Euro slides as bonds go up on eurozone concerns

The euro dropped to a three-week low versus the dollar, while bonds edged higher as Spain’s debt burden increased fears of further problems for economies in the eurozone and lowered appetite for riskier assets, reports Reuters.

Global stocks dipped, while gold and energy prices climbed. Wednesday’s poor Spanish bond auction added to concerns that the boost given by the European Central Bank’s injection of one trillion euros of cheap three-year funds into the region’s banking system could be coming to a sudden halt.

Ten-year government bond yields in Spain rose to 5.86 per cent yesterday, pulling down Italian rates as investors opted for the relative safety of US and German debt. The moves come on the back of two days of falls in stocks and other global markets after Federal Reserve meeting minutes released on Tuesday dashed hopes of additional economic stimulus.

The euro last stood at 0.6 per cent down at $1.3064 on the greenback, after having tumbled to $1.3033, a three-week low. In addition, it fell to a four-week versus the yen at 106.86 yen before climbing back up to trade at 107.58 yen, still 0.7 per cent down.

Spain’s borrowing costs on markets over a 10-year period increased by 30 basis points earlier in the week after the cost of borrowing went up at its bond auction. Currently, the yield premium on German benchmarks stands at 411 basis points, the highest it has been since November last year, before the ECB injected the three-year funds into the market.