Spanish 10 year bonds weigh heavily

10.41 AEST, Tuesday 24 July 2012

Spanish 10 year bonds weigh heavily on Australian markets
By Ric Spooner (Chief Market Analyst, CMC Markets)

Spanish 10 year bond yields at 7.5% make it difficult for investors to be positive about share markets.

Although opinions are divided on whether Spanish 10 year bond yields should be as high as 7.5%, the fact that they are creates a potentially self-fulfilling problem for world financial markets. If Spain’s debt costs are sustained at these levels they will be obliged to seek a bailout which could ultimately be as high as €500bn.

These concerns will weigh on Australian markets today. Although our market fell heavily yesterday, investors may be reluctant to buy aggressively at the moment. The impact of the Euro crisis is likely to have an ongoing impact on international consumer confidence and cap any significant bounce today.

The HSBC flash PMI for China will be closely watched by mining company investors today. Investors will be looking to assess the relative impacts on manufacturing of government stimulus initiatives on the one hand versus potentially weakening demand for China’ s exports, particularly from Europe on the other.

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