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Prospects Daily: Greek bond yields climb over 90% for the first time

Global Macroeconomics Team's picture

Important developments today:

1. Greek bond yields climb over 90% for the first time

2. U.S. manufacturing continues expanding

Greek bond yields climb over 90% for the first time. Yields on Greece’s two-year government note rose 505 basis points (bps) to 92.33% amid growing default concerns. The yields surged 954 bps yesterday as Greek Prime Minister George Papandreou called a referendum on the country’s latest international bailout package, spurring concern that the process will exacerbate the region’s debt crisis. Dutch Finance Minister said the referendum may delay the next installment of rescue funds by the International Monetary Fund and the European Union. Meanwhile, yields on Italian and Spanish government bonds fell 8 bps and 5 bps today, supported by European Central Bank buying after a sharp widening on Tuesday.

U.S. manufacturing continues expanding, albeit at a lower pace. Though continuing on its expansionary path, for the 27th consecutive month, manufacturing activity in the U.S. declined in October, mostly on account of a drop in export orders. The closely watched Institute for Supply Management’s factory index for the US dropped to 50.8 in October from 51.6 in September. A reading of 50 marks the dividing line between expansion and contraction. Although the new export orders sub-index declined to the lowest level since June 2009, the new orders sub-index rebounded after three months of decline showing that domestic demand is provided support to US manufacturing activity in October. The fall in U.S. export orders reflects the slowdown in demand from the Euro Zone. Indeed, unlike the US where manufacturing activity continues to expand, the October purchasing manager index for the Euro Zone shows that manufacturing activity there is contracting at the fastest rate since July 2009 – a reflection that the turmoil related to the Euro Zone debt crisis is now impacting the real economy even as consumer and business confidence has waned in recent months.

Among Emerging Markets

In Central and Eastern Europe, Romania’s central bank cut the key interest rate by 25 basis points to a record low of 6% in an effort to stimulate blocked credit markets. Inflation stood at 3.45% in September, after having peaked at 8.4% in May.

In South Asia, annual inflation in Pakistan stood at 11% in October according to the Federal Statistics Bureau, up from 10.46% in September.

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