The Euro jumped higher today against the US dollar, reaching 1.2609 as European leaders agreed to ease the terms of the EU aid to the Spanish government and potentially to the Italian government. More specifically, banks in need of bailout will be directly recapitalized from the ESM as soon as it is set up. However, the capacity of the EFSF and the ESM together will be up to 500 billion euros available for bonds purchase, while the Spanish and Italian outstanding debt is 2.4 trillion euros. Furthermore, Spanish 10-year bonds yield fell 46 basis points to 6.38 per cent and the Italian 10-year bond yield dropped by 32 basis points to 5.84 per cent.
At the same time, German 10-year borrowing cost rose by 13 basis points or by 0.13 per cent to 1.64 per cent. German Chancellor Angela Merkel accepted some of the steps to curb the downward spiral of the European debt crisis and that was reflected in Germany’s borrowing costs. European leaders meet today again to discuss upon long-term plans including building a closer fiscal and banking union.