Mid-Day Report: Greek Boosts Faded as Spanish Yield Broke 7% again to New Record

The boost from Greece election to market sentiments quickly faded today and Spanish 10 year yield breached 7% again and rose to new euro era high of 7.14%. As the situation in Greece is temporarily stabilized after pro-bailout parties secured majority, the spotlight is back on Spain. Markets were clearly concerned that the EUR 100b bank bailout program will worsen the country's fiscal budget. 7% is a level that is seen as unsustainable by the markets and that eventually led to sovereign bailout of Greece, Ireland and Portugal. Some analysts are expecting that Spain would eventually seek bailout for the country in the next six to nine months. Spain will hold auctions of 12-month, 18-month and 3-year debts later this week and these auctions would be seen as critical test on market confidence. Meanwhile, Italian 10 year yield is also back above 6% level. European stocks pared much of earlier gains and is nearly flat at the time of writing. US futures is indeed pointing to slightly lower open. EUR/USD hit as high as 1.2747 earlier today but is now back below 1.26 level.

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