Eurozone’s woes leak to the core

Tim Wallace
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FEARS of debt contagion seeping into the Eurozone’s core were heightened yesterday, as the cost of borrowing for triple-A-rated countries like France and Austria jumped.

Adding to the woes, yields on Italian 10-year debt yet again surpassed the seven per cent danger mark, climbing to 7.07 per cent. Beyond that level Greece, Portugal and Ireland all sought bailouts.

Investors again favoured German bunds over French bonds, with the spread rising to new highs of 1.911 per cent. Belgian and Austrian yields rose, while Dutch and Finnish borrowing costs also crept upwards, unsettling fund managers.

“Their sudden rise is a worrying sign that investors may be less willing to invest in the Eurozone altogether,” warned Capital Economics’ John Higgins.

“Indeed, the euro fell sharply against the dollar for the second day running,” Higgins added. The European single currency slipped to $1.35 during the day’s trading.

Meanwhile discontent spread to investors in Spanish bonds. The government sold €3.2bn (£3bn) in 12- and 18-month debt, short of its €3.5bn upper target. The yield came in at 5.022 per cent and 5.159 per cent respectively, the highest levels since 1997. Meanwhile the UK continued to benefit from a perceived “safe haven” status. Yields hovered around record lows, touching 2.11 per cent before closing at 2.15 per cent on ten-year debt.