Wednesday, November 9, 2011

Sell-Off Fever Spreads to U.S. on Fears of Broader Crisis

European efforts to curb the spread of financial crisis stranded (Wednesday), investors dumped their holdings of government bonds of Italy, to promote the global stock market sell-off.

Investors pushed up the cost of borrowing more than 7%, to a critical level in Italy, many economists believe is not sustainable, and last year's precipitation for the rescue of financially troubled countries, Greece, Ireland and Portugal.

Wednesday in the Italian government bond yields surge has catapulted into a dangerous new phase of the crisis in the euro area, said: "John - Higgins, a senior market economist with Capital Economics in a research report.

Italy's questions, only a few weeks, European leaders that they have agreed to Greece's debt restructuring, and strengthening the relief fund, the trend should be to protect Italy from.

But investors Wednesday with a sweep over the fire, dumping, European bond trading debt settlement proposed by the increased risk, as collateral, it needs to Italian debt. Meanwhile, the Bank has unloaded Italian bonds to reduce their exposure, and investors through the sale of the Italian bond futures negative bets.

Investors in the stock market, launched a wave of selling across the board in Europe and the United States. In Europe, major indexes fell about 2% over. Wall Street opened sharply lower, never recovered, the negative territory this year, pushing deeper into the broader market. Standard & Poor's 500-stock index fell 3.7%, or 46.82 points, 1,229.10.

Italian bonds because the interest rate is about 7.48%, the European Central Bank's intervention through the purchase of debt reached a peak, traders said, resulting in recovery rate has dropped slightly. However, this financial crisis in Europe is the latest stage of a European Central Bank's new focus, many expect it to take more positive action, to buy Italy's debt, so far.

Euro against the dollar, Spanish and French bond yields may also worry about further spread of infection. However, some deterioration in credit market gauge is not that day, obviously. Analysts said that Italy is a country seeking relief other than the strength of the weather and at least in the current high interest rates, short-term economic strength.

Investors can rest assured that if Italy in the coming weeks, the euro zone's third largest economy, can solve its political problems, and to a new government to address its economic slowdown and budgetary pressures.

But investors dumped the Italian debt on Wednesday after big European clearing house, London Clearing House, the need for more industry profit margins decline, so investors buying and selling has become more expensive.

Bank of Italy's debt has also been unloaded in order to reduce their exposure to Europe's financial crisis, tend to further upward pressure on interest rates. For example, since July, BNP Paribas has been reduced by 40% to 122 million euros will be exposed in the Italian government debt.

Italy is Europe's only country among the weak, as investors buy or sell futures contracts and Italian debt, investors have a negative bet on Italy to sell futures against the opportunity to increase the pressure.

At the same time, many analysts believe that, since Greece did not write down the debt off, should the Italian bond insurance as credit default swaps, investors concluded that the hedge where they do not provide adequate protection, another reason for investors to sell debt and reduce their exposure.

Italy is facing an important test of investor confidence, on Thursday the 1-year Treasury bond auction raised 500 million euros, 5-year bond auction next week, when it want to increase to 300 million euros. About 48% of the Italian debt is held by Italian investors, and the remaining (52%) are held by investors outside Italy, mainly in Europe.

It is beyond the ECB is not clear in the coming weeks the demand for Italian debt.

Some fund managers in London, said the rising trend of selling bonds in Italy after the proposed settlement of Italian bonds, including 30 years due to margin requirements.


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