I’m beginning to understand fundamentals better and have started trading on a daily basis. I’m sound in technicals and use them for the majority of my trading however I do feel the need to start understanding more of what I hear on the market news daily.
Lately (by lately I mean the past week) there’s talk of Portugal and Spain, auctions for bonds, and this word ‘yields’, all over the place. One question, what does it all mean? Not in terms of the market but just these investment vehicles themselves (if that’s what they are).
Why does the auctioning of these bonds affect the FX?
Portugal and Spain seem like smaller countries, why all the talk on waiting for results? Will they move the market substantially?
What are ‘yields’ and what do they mean for the FX?
Portugal and Spain have been in the news this week as they have been due to auction some bonds i.e. they want investors to buy debt off them. As investors are seeing these countries as more and more risky as an investment the yields have been rising to reflect this. This in turn makes it more expensive for these countries to raise money in the debt markets which doesn’t help if they’re already in financial difficulties. The other PIIGS countries have been experiencing the same problems throughout the year, especially Greece and Ireland.
All the talk of EU debt crisis has led the Euro lower and lower recently as investors are not convinced that the problem is being grasped fully by the EU. There’s been some jawboning lately about an increased response, ECB aid, etc. however. The bond auctions this week were going to be seen as a sort of indicator of investors’ willingness to buy PIIGS debt and investors’ outlook for the EU periphery in general. If the bond auction was successful and the amount of money demanded by investors for taking the debt was not too high this would be seen as a positive outlook on the immediate future for the PIIGS and would likely provide a bounce for the Euro as a result (and vice versa).
Earlier this week we’ve seen news from China, Japan, etc. about how they’re going to invest in bonds for the PIIGS. The ECB has also been acting as a buyer of last resort for these countries throughout a lot of last year. With the most recent Portuguese auction in reality it would’ve been a total failure if it wasn’t for the fact that China bought most of it (1.1 billion) and the ECB probably picked up a chunk of the rest. China holds a lot of EUR debt already and it doesn’t want to see the Euro fall off a cliff as this would reduce the value of the debt. In addition they don’t want the Euro to bomb as it would hurt Chinese exports to the EU. Japan’s offering to help buy EU bonds is mostly about their exports too and is kind of ridiculous as they’re pretty much bankrupt themselves.
Investors don’t really want to buy PIIGS debt as they’re worried about potential defaults and the Euro collapsing heavily. But as long as Portugal got the money they were auctioning off this was seen as positive for the Euro (in the short term at least). The same will happen with Spain’s auction today with China and the ECB probably picking up most of the tab. Personally I don’t see it really as Euro positive as these bond auctions would’ve bombed without China and the ECB and I guess that Euro selling due to the debt crisis will resume again before too long.
Thanks for the investopedia link. That helped me greatly, now it’s just a matter of finding the right charts / figures to look at in comparison to the charts I look at daily.
Not sure if there’s a calendar for them - you could probably find something prepared by financial institutions if you google it. Bloomberg will have it in the news section before the auction if it’s one you might need to know about. The DailyFx realtime feed will usually flash the results up of the more important auctions. Other realtime feeds probably do the same.
Recently I’ve found twitter to be a great source for news and events coming up. I started following a few names I’ve heard good things about and frankly, I would have completely overlooked anything about the bonds having an effect this week on the crazy EU.
