The Euro recorded big losses in the European session today after the results of a disappointing Italian debt auction.
Yield spreads on 10-year Italian bonds against the benchmark German bunds surged to 11-year highs. Italian 10-year bond yields rose 21 basis points to 5.97 percent as of 1:14 p.m. in London.
The 10-year Euro swap spread, which shows the difference between the 10-year swap rate and the yield on benchmark German bunds, used as a measure of perceived risk, rose to 53 basis points, the most since January 2009.
“The swap spread is being driven by bank risk and by safe- haven flows into bunds,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich.
What affected Italy’s bond sales more was news that Italian Economy Minister Giulio Tremonti was under investigation for corruption.
Surging Italian bond yields as well as rising Spanish bond yields heightened concerns about the Euro zone sovereign crisis, prompting markets to shift away from buying the Euro today, letting it sink further.
Meanwhile, Standard and Poor’s downgrade of Greece on Wednesday by two notches further weakens sentiment and fuels worries of debt contagion in Europe.
The Single Currency fell against most major counterparts, though it is hoped that the deadlocked U.S. debt ceiling talks could limit losses against the dollar.
EURCHF fell from a high of 1.1535 to a low of 1.1422 in the European session today.
EURUSD fell from a high of 1.4399 to a low of 1.4253.