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Forex Flash: Euro benefitting from renewed search for yield - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ notes that the Euro also appears to be befitting from the renewed search for yield amongst investors, attracted by the higher yields on offer in the Eurozone.

He sees that it has resulted in a modest tightening in the Eurozone sovereign credit risk premium over the past week, which also likely reflects the ongoing easing of concerns over fallout from developments in Cyprus. One exception he sees has been government bond yields in Portugal which remain modestly higher than the lows recorded in March. Hardman notes that t follows the recent decision by the constitutional court in Portugal to reject austerity measures totaling around 20% of the EUR5.0 billion the government planned to save in 2013.

As such, Portugal will not receive the next EUR2.0 billion tranche of external support until it has convinced international lenders that fresh cuts in spending on health and social security will be sufficient to compensate for the rejected measures. He adds that the FT has reported that it could also lead to the postponement of a long-awaited decision on easing loan repayments. With EU finance ministers are set to meet on Friday, he feels that there there is growing uncertainty as to whether they will agree to provide a seven-year extension to the repayment schedule for bailout loans, which are currently due to mature in 2016 and 2021. A debt extension is seen as providing a critical signal of support without which it would be more difficult for Portugal to return to market funding in September.

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