By TraderVox.com
Tradervox (Dublin) – The positive effect that came with the Long Term Refinancing Operation done by the European Central Bank is now fading as concerns about sovereign debt crisis are reemerging in the 17-nation trading bloc. Last week’s Spain bond auction signaled concerns about the region’s debt crisis with investors taking a smaller portion of Spain debt than it was expected.
This has sparked negative comments from economists who are concerned that the LTRO measures are fading in their effect. Analysts are warning that the not-so-well-received Spanish auction may lead to fear in the coming auctions especially for peripheral countries leading to low uptake of government bonds in the region.
There has been a continued competition between Spain and Italy for funds from international investors which is expected to heat up during the second quarter as the effects of the European Central Bank LTRO fades. These sentiments have been precipitated by the recent low demand for the Spanish and Italian bonds. Further, this situation has been aggravated by the Spanish Prime Minister Mariano Rajoy who indicated that his country was experience extreme difficulty.
The effect of LTROs that ECB President Mario Draghi said they present an opportunity for the region’s government to consolidate fiscal budgets and structural reforms have faded in their effect in the region with investors raising concerns of debt crisis in other countries such as Italy, Spain, and Portugal.
According to Werner Fey of Frankfurt Trust Investment, the positive effects of Long Term Refinancing Operations are fading with the market shifting to political developments. Fey also talked about the Spanish auction which he said that it was not well received hence posing a risk for other bond auctions.
These concerns are coming at a time when the Bank of Japan has refrained from another round of stimulus causing the yen to gain. This is expected to push the euro further down against the yen and other major currencies. Chinese import data and the Euro-zone Sentix Investor Confidence report are expected to push the euro down.
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