Bloomberg News

EU Decision on Spanish Debt Is Positive for Euro, ABN’s Teo Says

June 28, 2012

Roy Teo, a currency strategist in Singapore at ABN Amro Private Bank, said euro-area leaders’ decision on Spanish loans is positive for the euro.

The 17-nation currency surged 1.2 percent to $1.2595 as of 12:34 p.m. in Tokyo. Euro-area leaders agreed to drop the condition that emergency loans to Spanish banks give their governments preferred creditor status, European Union President Herman Van Rompuy told reporters after a summit.

Spain’s benchmark 10-year yield climbed to a euro-lifetime high of 7.29 percent on June 18.

On Spanish bond yields, euro:

European leaders “have addressed the issues on the seniority of Spanish loans. That should help push down Spanish yields.

‘‘It’s positive for the euro.’’

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. From that perspective, private bond holders would demand higher yield premiums.

‘‘So 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 and that should be positive for the euro.’’

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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