An EU-IMF rescue package for Greece helped calm market jitters yesterday and boosted the appeal of risky assets, with world stocks hitting 18-month highs and the euro rising to its highest in nearly a month.
Greece’s borrowing costs eased to their lowest levels in a week, while other riskier assets like commodities were also in demand. Yields on “safe haven” German Bunds and US Treasuries rose.
Euro zone finance ministers approved a 30-billion-euro (US$40 billion) emergency aid mechanism for debt-plagued Greece on Sunday but said Athens had not requested it be activated yet.
Together with at least 10 billion euros expected from the IMF in the first year, it could add up to the biggest multilateral financial rescue ever attempted.
Greece’s share benchmark surged 4.9 percent, while the pan-European FTSEurofirst 300 gained 0.2 percent, helped by stronger bank shares.
Swiss bank UBS was among the top gainers in Europe, up 2.9 percent after it delivered its highest pre-tax profit since the start of the credit crisis and said withdrawals were substantially lower at all divisions.
Global equities measured by the MSCI All-Country World Index advanced 0.4 percent to 315.2 points, after hitting an 18-month high of 315.59.
Earlier, Asian shares outside Japan hit 22-month highs and Tokyo’s Nikkei average rose 0.4 percent.
“The package is big enough and the term seems reasonable. For the market it means Greece will never have to panic sell and the market can’t force Greece into a corner and that changes complexion of Greek bets and the euro in the short term at least,” said Daragh Maher, deputy head of global foreign exchange research at Calyon.
“It’s generally positive for risk because you’ve taken out one of the big banana skins in terms of macroeconomic risk. [But] Greece still face difficulties and other euro zone countries face difficulties. It’s hard to create medium-term bullish story for the euro,” Maher said.
The euro was up 0.04 percent against the dollar at US$1.3628, after hitting a high of US$1.3691. The dollar fell 0.8 percent against a basket of major currencies.
The premium investors demand to hold Greek government bonds rather than benchmark Bunds fell to 367 basis points, its lowest in a week, versus 409 basis points at Friday’s settlement close.
“It’s a question of how far Greek government debt can normalize now,” a bond trader in London said.
Athens will test market appetite for its debt with an auction of 1.2 billion euros in Treasury bills today and is still planning a dollar bond.
Yields on 10-year benchmark US Treasuries were up 4 basis points at 3.918 percent, while those on 10-year Bunds were up 6 basis points at 3.222 percent.
Oil prices rose above US$85 a barrel, buoyed by a drop in the dollar and bullish data that showed China crude imports jumping to their second-highest monthly level last month.
Offshore Chinese yuan forwards edged down against the dollar after Beijing reported its first monthly trade deficit in six years, which may decrease expectations for a rise in the yuan.
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