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Eurozone crisis live: Markets hope for Greek bond deal

Euro rallies, buoyed by hopes for Greek bond swap deal
• European stock markets expected to open higher
• Traders wait for €3bn Italian bond auction

7.53am: The euro is up against the dollar this morning, amid stop-loss buying and hopes for a Greek bond swap deal. It hit .2879 earlier and is now trading at .2854.

The chief executive of French bank Société Générale, Frédéric Oudéa, told newspaper Les Echos that there is a good chance that a deal with private creditors to write down at least half the value of their Greek bonds will happen within the next few days.

Etes-vous optimiste sur l’issue des négociations sur l’échange de dette grecque ?

Elles ont de bonnes chances d’aboutir dans les prochains jours. Parmi les créanciers privés, les banques ont accepté de faire un effort exceptionnel. Il est possible que les pertes finales aillent au-delà de 50 %, mais il faut veiller à respecter un certain équilibre car même si les gouvernements s’attachent à dire que la Grèce sera un cas unique, il fera école pour les investisseurs. Il deviendra un « étalon du pire » qui risque de peser sur les autres pays.

7.42am: Good morning. We’re back with more live coverage of the European debt crisis and world economy.

The euro has rallied in the past 24 hours, thanks in large part to the successful Spanish and Italian bond auctions yesterday. Bond yields fell sharply as Spain sold twice its target on the short dated debt, while Italy got its bonds away at half the interest rate it was paying last year. There is another Italian bond sale today, €3bn of three-year debt.

European stock markets are poised to open higher, with the FTSE 100 index in London seen rising more than 30 points to 5696.

Michael Hewson, market analyst at CMC Markets, said:

It has been speculated that the new 3 year LTRO’s initiated by the ECB last month have played a large part in the success of bringing yields down as banks take advantage of the low borrowing costs to play the carry on sovereign bond yields.

It remains to be seen whether banks and investors will be prepared to do that with longer term paper and that really remains the acid test, as to whether these lower borrowing costs are sustainable.

There is also speculation that the relaxation of capital rules, to be finalised next week could see the unlocking of trillions of extra euros with which banks can use for collateral to gain access to these ECB loans.

Today’s Italian bond auction of €3bn of three year debt, maturing in November 2014 is likely to go the same way as yesterday’s successful T-bill auctions, with lower yields, and certainly below the yields seen in December at around 5.62%, for similar terms.

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