Spanish and Italian bonds rally for 3rd day

Spanish and Italian bonds are rallying for a 3rd straight day on the prospect the EFSF will utilize a function it was originally granted to use and that is buy sovereign bonds in the secondary market. Ever since the ECB started buying bonds, they’ve been calling for the EFSF to take over this function and ECB member Coeure today in the FT again repeated that request as he basically said today the ECB is not playing that role again. Spain sold 2.2b euros of debt with 3 maturities out 5 yrs, above the 2.0b target amount. Today we should get two sanctioned reports on how much capital the Spanish banking system needs to cover hopefully realistic loan loss provisions. The June Euro region mfr’g and services composite index was unchanged at 46, still of course below 50 but a touch above estimates as services rose slightly, offsetting another decline in mfr’g. German mfr’g in particular fell to the lowest since June ’09. In Asia, the preliminary HSBC mfr’g PMI fell to 48.1 from 48.4, a 7 month low and the Shanghai index fell 1.4% in response. Taiwan followed South Korea, Thailand, Indonesia, New Zealand, India and the Philippines and kept interest rates unchanged as expected.

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