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Morning papers: ECB denies plan to cap bond yields

The morning papers brought to you by Investment Adviser: Tuesday August 21 2012.

By Simona Stankovska | Published Aug 21, 2012 | comments

The European Central Bank (ECB) s been forced to quash speculation over its plans to tackle the eurozone financial crisis, denying it was considering caps on bond yields to bring down borrowing costs for troubled governments, reports the Financial Times.

The ECB is preparing plans to intervene in bond markets to try to drive down yields, which it considers are unjustifiably high for some eurozone countries. Der Spiegel, a German magazine, said at the weekend that the central bank was considering establishing thresholds for sovereign bond yields, beyond which it would intervene to buy bonds. The thresholds would be set relative to yields on German bonds, considered the eurozone’s safest, the report said.

Germany backs Draghi bond plan against Bundesbank

Germany’s director at the ECB has thrown his weight behind mass purchases of Spanish and Italian debt to prevent the disintegration of the euro, marking a crucial turning point in the eurozone debt crisis, reports The Telegraph.

“A currency can only be stable if its future existence is not in doubt,” said Jörg Asmussen, the powerful German member of the ECB’s executive board.

He signalled full backing for the bond rescue plan of ECB chief Mario Draghi, brushing aside warnings from the German Bundesbank that large-scale purchases would amount to debt monetisation and a back-door fiscal rescue of insolvent states in breach of EU treaty law.

Disparities widen as ECB shifts focus

Imbalances in the eurozone’s crisis-hit banking system are becoming starker. Earlier this month Mario Draghi, president of the ECB, cited financial fragmentation to justify a bolder response to the region’s debt woes: markets now expect a beefed-up government bond buying programme in coming months, reports the Financial Times.

By fragmentation, Mr Draghi meant Europe’s malfunctioning interbank lending markets and the retreat by investors to their home countries. The flipside is a sharply increased reliance of banks in the eurozone periphery on ECB liquidity.

Spanish yields at lowest level since June

Spain’s benchmark borrowing costs fell to as investors increased bets that the ECB could intervene in the periphery’s bond markets, reports the Financial Times.

The ECB’s denial of a report that it was considering setting a specific spread or yield target for European periphery sovereign bonds markedly calmed the initial rally on Monday, but both Italian and Spanish borrowing costs ended the day lower.

Apple becomes the world’s most valuable company ever, setting $623bn record

Apple yesterday became the most valuable public company in history, reports The Daily Mail.

The share price of the technology firm rocketed to £423.33 in frenzied trading, taking the total value of its shares to £395bn.

Apple was already the number one on companies’ current value, a position it has held since dethroning oil giant Exxon Mobil last August.

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