The euro starts the week under heavy selloff pressure and the risk aversion is at its peak. The market remains jittery after a lackluster closing on Friday as fears over Spain begin to materialize with Valencia becoming the first region to request aid.
Market volatility and jitters are once again ignited by the worsening status in Spain and yields that are surging to new records, with the 10-year Spanish yield steady now above 7.0% with eyes locked now at that 8.0%!
Tomorrow, the Spanish government is set to sell bonds maturing in three and six months.
The euro is heavily sold off and risk aversion is flooding to the yen and the dollar. The EUR/JPY slumped to a fresh 11 year low this morning now at 94.24 and the EUR/USD extended the losses seen to trade around $1.2080 back to the weakest since June 2010.
Last week, euro zone finance ministers agreed to grant Spain an aid that may reach up to 100 billion euros, where the exact amount of the loan will probably be decided in September after carrying on stress tests on banks by audits, and a tranche of 30 billion euros are expected to be given to Spain by the end of the current month.
However, fears were triggered on Friday after the region of Valencia, which is saddled by debt, said it needs an aid from Madrid to become the first region to use the 18 billion euros aid program prepared by the Spanish government this month to ease their funding struggle, where it still needs to repay a debt of 2.85 billion euros by the end of the current year.
"Valencia, like in other autonomous regions, is suffering from the consequences of the liquidity shortage in markets due to the economic crisis," the regional government statement said in a statement.
The tiny region of Murcia was set to become the second, out of Spain`s 17 heavily indebted regions, to ask for a help from the government as it has repay 430 million euro in the second and third quarter of this year.
Now, speculations are in favor of seeing further requests from other regions, where Spanish media referred that the number would increase to six regions, most notably the biggest region of Spain and the most indebted, Catalonia.
The Spanish regions have to repay 15 billion euros of debt in the second half of 2012, where pressure is increasing on regions to repay debt with the grim economic conditions encountering Spain. The government slashed growth forecasts for next year to state that recession would continue in 2013, following a contraction of 1.5% this year.
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