By Candice Zachariahs and Monami Yui - Jul 11, 2011 7:25 PM PT
The euro declined to a four-month low against the yen as soaring yields on Italian government bonds stoked concern the region’s sovereign-debt crisis is spreading to its largest economies.
The 17-nation currency fell to a record versus the Swiss franc before the Italian Treasury sells one-year bills today and as much as 5 billion euros ($7 billion) of bonds on July 14. The yen rose against most of its major counterparts as Asian stocks extended a worldwide equity slump, spurring demand for safer assets. The dollar maintained a two-day drop versus the yen before the Federal Reserve releases minutes from its June meeting amid signs the U.S. recovery is faltering.
“There’s no question that the Italian debt situation is under pressure,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland,New Zealand. “There’s still weakness and downside potential for the euro.”
The euro fell to as low as 111.74 yen, the least since March 18, before trading at 111.88 at 11:08 a.m. in Tokyo from 112.61 in New Yorkyesterday. It declined to $1.3938, the weakest since March 17, from $1.4029 yesterday, before changing hands at $1.3959. The euro was 0.3 percent lower at 1.16882 Swiss francs after dropping to a record 1.16719.
The dollar slipped to 80.15 yen from 80.26 yesterday.
The yield on 10-year Italian bonds rose 41 basis points to close at 5.68 percent yesterday, the highest in more than a decade, pushing the yield premium investors demand to hold the debt over German bunds to a euro-era record of 301 basis points.
Italian bond yields are less than 2 percentage points away from disaster, according to Gary Jenkins, head of fixed-income at Evolution Securities Ltd. in London. Greece, Ireland and Portugal all sought international assistance after their 10-year yields rose past 7 percent.
Italy faces 175 billion euros in debt maturities this year and has 1.6 trillion euros of bonds outstanding, the world’s third-largest debt pile after the U.S. and Japan.
The MSCI Asia Pacific Index fell 1.7 percent following yesterday’s 1.8 percent drop in the Standard & Poor’s 500 Index.
To contact the reporters on this story: Candice Zachariahs in Sydney atczachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
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