Greek debt worries escalate

The
euro is under pressure as a widening Greek yield spread sparked renewed worries
about Greece’s ability to finance its debt.

Commodity-related
currencies such as the Australian, New Zealand and Canadian dollars also struggled
as oil prices and U.S. equities wobbled, with investors showing less inclination
to bet on riskier assets. Any time uncertainty clouds markets, the dollar and
yen tend to benefit as temporary safe harbours.

Some
of the concern about the euro had been prompted by the Greek-to-German 10-year
yield spread surging in low-volume trading to reach a record 5.17 percentage
points during the European session. This yield spread means that Greece pays a
yield of 8.24 per cent to investors on a 10-year bond.

The
latest troubles for the euro and Greek bonds come even as Greece, the European
Union and the International Monetary Fund opened talks in Athens. The euro’s
decline reflects lingering worries that European authorities will be unable to
act quickly on the aid accord reached earlier this month.

“The
moves appear exaggerated,” Todd Elmer, currency strategist with CitiFX in
New York, said. “The risks are building for a bounce in the euro if the
assistance comes through.”

The
EU and the IMF have pledged a total of $60 billion to Greece, but the structure
and conditions of any bailout remain unclear. Greece is due to repay $11
billion in bonds that mature on 19 May  and
the government is weighing how to present a decision to the public that the
country will seek financial aid from the EU and the IMF.

“The euro is
likely to trade with a downward bias until the debt talks are over,” said
Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global in
Chicago.

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