Monday Blues : Italian And Greek Debt Woes Asian Markets
Due to the new Italian and Greek Government policy of bailing out the debt ridden country, Asian Market saw a fall on the 1st day of the week.
U.S. stock index futures reversed course and fell into negative territory after opening higher, as market players refocused on a lack of commitment to details that are crucial in making the Greek bailout program work. Investors were also shifting their attention to another debt-burdened country, Italy, putting it under pressure to swiftly restore its credibility on financial markets.
Italy is the third largest economy in the euro zone with the biggest government bond market. With Italy’s debt levels stuck at 120 percent of GDP, the country’s debt problems would pose a much bigger risk to the financial markets than Greece does. Italy’s borrowing costs have been rising sharply over the past several weeks. Italian 10-year government bond yields hit record highs of around 6.4 percent on Friday, expanding the spread of Italian 10-year yields over Bunds to a new lifetime high. Italian Prime Minister Silvio Berlusconi said his country would welcome quarterly monitoring by the International Monetary Fund of pension and labor market reforms and privatizations he had promised to implement.
Greek Prime Minister George Papandreou and opposition leader Antonis Samaras agreed on a new coalition government to approve the bailout plan, which requires painful fiscal reform, before elections. Papandreou and Samaras had been scrambling to reach a deal before finance ministers of euro countries meet in Brussels later on Monday, to show that Greece is serious about taking steps needed to stave off bankruptcy. Political wrangling in Greece had sparked panic in global financial markets on fears that it would fail to save the country from defaulting and to stop the sovereign debt crisis from spreading to other countries in the euro zone.
While Greece has for now managed to stay on track to reduce its huge debt, market jitters remain over a lack of funding to beef up the bailout fund after the euro zone failed to get any concrete pledge for new money at a G20 summit on Friday.
The euro fell 0.4 percent to $1.3770 against the dollar, retreating from an earlier high of $1.3837 , while the Australian dollar , which often is seen as a gauge for risk appetite given its close link to commodities, also eased 0.4 percent.
A retreat in investor appetite for riskier assets helped safe-haven government bonds, with U.S. Treasury futures down 1.5/32 at 130-06.5/32 from 130-08/32 late on Friday in New York. It was down to around 130 in early Asia on Monday.
Spot gold rose 0.7 percent to $1,766 an ounce on Monday, as uncertainties over the euro zone debt crisis renewed bids for safe-haven assets.
