Despite news that Moody’s may downgrade Spanish sovereign debt and the banking system may need another EUR 90 bln in capital. spreads between German and Spanish debt are contracting today.
When I sat down, we we’re about 250 bps. Now we are trading around 240 bp.
My guess is the ECB is buying more debt of the peripheral euro zone nations but I have no confirmation as such. Another HAG (hairy-assed guess) on my part.
Narrowing spreads tend to be euro supportive.
EUR/USD has settled into a quiet range, awaiting the outcome of the Irish vote on the EU package. Narrow passage is expected. A failure to approve the package would undoubtedly hit the euro near-term.
UPDATE: Ireland approved the package by 6 votes.
