While you were sleeping: Euro gains as Greece offers to buy back bonds

Angela Merkel: Germany may accept write-off of Greek debt

The euro rose to a six-week high against the dollar after Greece offered to buy back 10 billion euros of bonds in what is seen as a sign of progress in tackling its debt mountain.

As talks in Washington aimed at averting the fiscal cliff appear stalled, a chink of light has flowed into markets from Europe.

The euro traded recently at $1.3065 from $1.3006 in late New York trading on Friday. The Dollar Index, which tracks the greenback against six major currencies, fell to 79.819, the lowest since late October.

Greece's Public Debt Management Agency is offering a maximum purchase price of 34.1% for bonds maturing from 2023 to 2042, higher than expected.

Greek bonds rose on the news, pushing the 10-year yield below 15% for the first time since March. The February 2023 bond price is at 39.31% of face value, according to Bloomberg.

The buyback will be via a swap into six-month bills from the European Financial Stability Facility, which last week had its provisional debt rating cut to (P)Aa1 from (P)Aaa with a negative outlook by Moody's Investors Service.

It is part of plans to reduce Greece's debt to 124% of gross domestic product by 2020.

The buyback was one of the conditions of the financial aid approved by eurozone finance ministers and the International Monetary Fund last week and comes as German Chancellor Angela Merkel appears to be softening her stance on conditions for a bailout, saying her country may accept a write-off of Greek debt.

"If Greece one day can rely once again on its own revenue, without having to borrow, then we'll have to look at this situation and make an evaluation," she said in an interview with Germany's Bild newspaper.

Equity markets were generally higher in Europe though they pared gains after an unexpectedly weak US manufacturing report. The Stoxx Europe 600 Index rose 0.1%, Germany's DAX 30 climbed 0.4% and France's CAC 40 rose 0.3%.

"If Greece can manage the buyback and get a new tranche of aid, then the Greece problem will be out of the way until the end of 2013," Philippe Gijsels, head of fixed-income research at BNP Paribas Fortis in Brussels, told Bloomberg.

Manufacturing in the US unexpectedly contracted last month. The Institute for Supply Management's factory index fell to a three-year low of 49.5 in November from 51.7 in October, surprising economists who had expected manufacturing to expand.

Manufacturing in the eurozone was also weaker, shrinking for a 16th straight month for a reading of 46.2.

Stocks on Wall Street weakened after the manufacturing data. The Dow Jones Industrial Average was recently 0.3% lower, with manufacturers such as DuPont and General Electric leading the decline. The Standard & Poor's 500 Index was down 0.1%.

Adding to America's economic woes, Fitch Ratings said warned that the $US607 billion of tax increases and federal spending cuts that kick in on January 1 are the biggest threat to the credit rating of US states in 2013.

"The risk that the fiscal cliff presents to the overall economy is the biggest concern for state credit, as state revenue systems quickly reflect changing economic conditions," Fitch managing director Laura Porter said in a statement yesterday.

US Treasury Secretary Timothy Geithner told CNN's State of the Union that Republicans will "own the responsibility for the damage" to the US economy if they do not cede ground and agree to tax hikes for the wealthiest Americans.

(BusinessDesk)

This article is tagged with the following keywords. Find out more about My Tags

Comment & Question

Commenter icon key: Subscriber Verified

Post New comment or question

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

NZ Market Snapshot

Forex

Sym Price Change
USD 0.7845 0.0017 0.22%
AUD 0.8994 0.0002 0.02%
EUR 0.6203 0.0010 0.16%
GBP 0.4929 0.0003 0.06%
HKD 6.0847 0.0131 0.22%
JPY 84.0120 0.0180 0.02%

Commods

Commodity Price Change Time
Gold Index 1233.8 -1.760 2014-10-14T00:
Oil Brent 85.4 -4.470 2014-10-14T00:
Oil Nymex 81.2 -4.530 2014-10-14T00:
Silver Index 17.4 0.035 2014-10-14T00:

Indices

Symbol Open High Last %
NZX 50 5145.9 5168.7 5145.9 0.33%
NASDAQ 4246.2 4281.3 4213.6 0.32%
DAX 8765.4 8854.4 8812.4 0.15%
DJI 16321.9 16463.7 16321.1 -0.04%
FTSE 6366.2 6403.4 6366.2 0.42%
HKSE 23087.5 23230.3 23048.0 0.67%
NI225 15009.8 15044.3 14936.5 -0.13%