NY Sees Widening European Spreas and Sells the Euro

European investors seemed unperturbed by the new strains in the European bond market and had bid the euro to $1.3120. North American traders seem more concerned as they were before the weekend. The euro has moved back toward the session lows--set in thin early Asian activity (Japan markets were closed) near $1.3035. Irish and Portugal bonds are under the most pressure. Irish 10-year bonds yields are up 18 bp and Portugal's 10-year yield is up 25 bp. Both countries are seeking to sell bonds this week (tomorrow and Wed respectively). Both countries are paying a record premium over Germany. The EU is quoted on the news wires saying that Ireland needs a "sizeable effort" to reduce its deficit. Irish officials have played down speculation that it will have to tap the EFSF/IMF support.

The euro is not only failling against the dollar, but it is slipped against sterling, having been turned back again from the test on GBP0.8400 and against the Swiss franc. The euro has lost nearly 2% against the Swiss franc since the pre-weekend high of almost CHF1.34.