BLBG:Euro Rises After EU Leaders Renounce Spain Loan Seniority
The euro surged the most this year after European leaders eased terms on loans to Spanish banks, taking a step to resolve the region’s debt crisis.
The 17-nation euro rallied against the yen as European Union President Herman Van Rompuy said officials meeting in Brussels agreed to drop the condition that emergency loans to Spanish banks give their governments preferred creditor status. The Australian and New Zealand dollars advanced as Asian stocks rose, boosting demand for higher-yielding assets.
The European Union has “addressed the issues on the seniority of Spanish loans,” said Roy Teo, a currency strategist in Singapore at ABN Amro Private Bank. “That should help push down Spanish yields. It’s positive for the euro.”
The 17-nation euro surged as much as 1.5 percent, the biggest intraday advance since Nov. 30. It was up 1.3 percent to $1.2601 at 7:05 a.m. in London from the close in New York yesterday. The euro jumped 1.2 percent to 100.08 yen after earlier falling as much as 0.3 percent. The Japanese currency fetched 79.43 per dollar from 79.46.
The Australian dollar added 1.5 percent to $1.0192 and the New Zealand dollar rallied 1.3 percent to 79.84 U.S. cents.
EU leaders met in Brussels yesterday and today to discuss measures to stem a debt crisis that’s spurred five euro members to seek international bailouts. Earlier this month, Spain agreed to take a rescue loan of as much as 100 billion euros ($126 billion) to help recapitalize its banking sector.
Spain’s 10-year bond yields climbed to a euro-lifetime high of 7.29 percent on June 18, surpassing the 7 percent level that spurred Greece, Ireland and Portugal to seek bailouts.
Political Landscape
With the turmoil in its third year and Europe’s political landscape shifting against German Chancellor Angela Merkel, French President Francois Hollande led a rebellion against Germany’s prescriptions with calls for immediate relief for hard-hit countries. He put French backing of a German-inspired deficit-control treaty on hold, and Italy and Spain withheld approval of a 120 billion-euro growth-boosting package unless Germany authorized steps to calm their bond markets.
Euro-area finance ministers will enact today’s deal on loans to Spanish banks at a meeting on July 9, Rompuy said, calling the accord a “breakthrough.”
‘Equal Weighting’
When European policy makers “started saying that they would inject bailout funds into the Spanish banks, bond holders were already worried that in an event of any haircut or default, the money from Europe’s bailout fund will have a seniority status compared to private bond holders,” ABN Amro’s Teo said. “The fact that right now they are renouncing the seniority status means private bond holders will have similar, equal weighting in that sense. So that should reduce their investors’ premium for investing in Spanish debt.”
The euro has lost 2.4 percent this year against a basket of nine developed-market peers, according to Bloomberg Correlation- Weighted Indexes. The dollar has risen 0.7 percent and the yen has fallen 2.8 percent.
Japan’s currency gained earlier amid speculation that Europe’s debt crisis will damp global growth, supporting demand for refuge assets. French gross domestic product was probably unchanged from the fourth quarter, matching the government’s previous projection, according to the median estimate of economists in a Bloomberg News survey before the national statistics office releases the figure today.
European Unemployment
The jobless rate in the 17-nation euro zone was at 11.1 percent in May, a Bloomberg poll of economists indicated ahead of a report from the EU’s statistics office due July 2. Data yesterday showed unemployment climbed in June for the fourth month this year in Germany, the currency bloc’s biggest economy.
“The euro region is in a negative spiral where the sovereign-debt crisis triggered the banking crisis, which then is resulting in the economic slowdown,” said Kikuko Takeda, a senior currency economist in London at the Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value.
In Japan, government reports today showed the nation’s industrial production slid 3.1 percent in May from April, the biggest decline since March 2011, and consumer prices declined 0.1 percent last month.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
