LONDON, Nov 23 (Reuters) – One of Germany’s worst bond sales since the launch of the euro prompted concerns the debt crisis was even beginning to threaten Berlin on Wednesday, with the Bundesbank forced to buy large amounts of the bonds to ensure the auction did not fail.

The low yields offered on the 10-year paper deterred investors from the auction, especially because of growing concerns over the cost to Germany of the escalating crisis.

That meant the central bank had to pick up 39 percent of the 6 billion euros of debt Germany had hoped to sell to investors after banks bought just 3.644 billion euros of the issue.

“It is a complete and utter disaster,” said Marc Ostwald, strategist at Monument Securities in London.

“This does not bode well, it is the worst of uncovered auctions that we’ve had this year and little wonder that the Bund sold off on the back of it.”

German Bund futures, the euro and European stocks fell after the announcement of the auction results.

The country’s debt agency said the shortfall in the sale reflected worsening market nerves on European debt markets but added it would sell back the retained amount to investors on secondary debt markets and that Germany would not face a funding bottleneck.

LONDON, Nov 22 (Reuters) – Euro zone banks increased their borrowing at the European Central Bank to the highest level in two years on Tuesday, highlighting the growing difficulty of sourcing funding from interbank markets as the region’s debt crisis escalates.

Spain and Italy face borrowing costs seen by many as unsustainable and, with little confidence in official efforts to build a bailout fund big enough to rescue them, vanishing trust between banks holding their debt has caused lending to dry up.

Faced with rising costs and declining availability of market funding sources, banks are becoming increasingly dependent on the ECB to meet their financing needs.

Bank borrowing at the ECB’s weekly offering of unlimited seven-day loans rose by 17 billion euros to 247 billion euros and could rise further as the crisis threatened to hit the currency bloc’s higher-rated states like France.

“Banks will sustain increased bank funding pressure going forward unless we have a restoration of confidence in the euro system, which is not exactly near in sight,” said Matteo Regesta, strategist at BNP Paribas in London.

“Liquidity provided remains well above needs, but I take the view that stress is unlikely to fade.”

The rise in demand for central bank funds was, in part, driven by the Nov. 9 decision by clearing houses to raise the risk margin it requires to clear repo transactions on Italian bonds — making a key source of bank funding more expensive.

LONDON (Reuters) – The euro inched up against the dollar on Friday as investors unwound bearish bets on the single currency to book profits ahead of the weekend, but with the euro zone debt crisis escalating, appetite to sell on upticks was high.

With Italian and Spanish bond yields close to unsustainable levels, pressure was mounting on the European Central Bank to step up its bond-buying program in the face of rapidly falling demand from other investors.

Until a solution emerges that makes the ECB the lender of last resort, the euro is unlikely to sustain any gains.

Selling pressure on the euro has intensified this week on signs that the contagion was spreading to core euro zone countries such as France.

With German bond yields no longer moving lower as peripheral yields rise, analysts said this suggested that portfolio adjustments were not just moving from peripheral debt to core Bunds, but that investors were abandoning the euro zone altogether.

The euro rose 0.3 percent to $1.3502, not far from its five-week low of $1.3421 struck on Thursday. It is still down roughly 2 percent for the week.

Support for the euro lies at around $1.3405, the 76.4 percent retracement of the October rally.

LONDON (Reuters) – An increasingly difficult search for dollar funding by euro zone financial institutions will gradually push the euro lower but only a major event such as a sovereign default or a break-up of the currency bloc would trigger a precipitous fall.

The euro has so far held up well against the dollar, trading around $1.35 and still 1 percent higher on the year, despite the spreading euro zone debt crisis. But selling of euro zone assets by spooked investors is likely to see increased demand for the safe-haven dollar.

A key barometer of cross-border funding stress — the euro/dollar cross currency basis swap — hit its highest level since the collapse of Lehman Brothers in 2008 when dollar funding dried up and banks refused to lend to each other.

European banks scrambled for dollars and the euro slid to around $1.2330 in October 2008 from above $1.60 in July.

These three-month cross currency basis swaps, which measure the premium banks have to pay to exchange euros for dollars, have surged to 136 basis points. They have risen by 21 basis points this week alone and many believe this is just the start.

As the premium for three month funding rises, banks will have to move to shorter-term sources of dollar funding, eventually driving them into the spot currency market.

“The longer it lasts, the more bearish it is for the euro,” said Sebastien Galy, FX strategist at Societe Generale. “So far it hasn’t acted as an accelerant but that can happen if a credit event takes place or the ECB stops buying Italian bonds.”

LONDON (Reuters) – An increasingly difficult search for dollar funding by euro zone financial institutions will gradually push the euro lower but only a major event such as a sovereign default or a break-up of the currency bloc would trigger a precipitous fall.

The euro has so far held up well against the dollar, trading around $1.35 and still 1 percent higher on the year, despite the spreading euro zone debt crisis. But selling of euro zone assets by spooked investors is likely to see increased demand for the safe-haven dollar.

A key barometer of cross-border funding stress — the euro/dollar cross currency basis swap — hit its highest level since the collapse of Lehman Brothers in 2008 when dollar funding dried up and banks refused to lend to each other.

European banks scrambled for dollars and the euro slid to around $1.2330 in October 2008 from above $1.60 in July.

These three-month cross currency basis swaps, which measure the premium banks have to pay to exchange euros for dollars, have surged to 136 basis points . They have risen by 21 basis points this week alone and many believe this is just the start.

As the premium for three month funding rises, banks will have to move to shorter-term sources of dollar funding, eventually driving them into the spot currency market.

“The longer it lasts, the more bearish it is for the euro,” said Sebastien Galy, FX strategist at Societe Generale. “So far it hasn’t acted as an accelerant but that can happen if a credit event takes place or the ECB stops buying Italian bonds.”

LONDON, Nov 16 (Reuters) – Sterling hit a four-week low versus the dollar on Wednesday as the Bank of England cut its growth and inflation forecasts, leaving the door open for more stimulus, while euro zone debt worries pushed investors towards the safety of the dollar.

The Bank of England’s quarterly inflation report showed Britain on the brink of contraction and forecast that inflation would eventually fall well below target. This suggests, as many expect, that it may add to its 275 billion pound asset purchase programme.

Data also showed Britain’s jobless rate at a 15-year high, underlining the weakness in its economy.

“It’s all bad news for sterling, but the surprise effect was limited, which is why the scale of the sterling decline is also limited so far,” said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.

Sterling fell 0.3 percent against the dollar to $1.5762, having touched $1.5738, its lowest since Oct. 20.

The next support level was $1.5719, the 50 percent retracement of the rise from Oct. 6 to 31. A break below there could see it drop towards the Oct. 20 low of $1.5680 and the Oct. 18 low of $1.5631.

“(BoE Governor Mervyn) King stressed the outlook for the economy has worsened since the August report thus underlining the probable need for more stimulus in the form of QE. Sterling is drifting lower … The old range low of $1.5265 looms,” said Richard Wiltshire, chief FX broker at ETX Capital.

LONDON (Reuters) – Banks acting as primary dealers of Italian debt are growing uncomfortable with their obligation to buy at bond auctions as the euro zone crisis worsens, increasing the risk that Italy fails to raise enough cash to stay afloat.

Since October, Italy’s borrowing costs have risen to levels deemed unsustainable, making long-term investors reluctant to buy and increasing the risk that the banks able to bid at auctions are left holding a rapidly depreciating stock of bonds.

Borrowing via debt auctions is vital if governments are to cover their budget deficits. Italy plans gross debt issuance of around 440 billion euros next year.

The 20 specialist primary dealer banks granted the exclusive right to buy at Italian auctions, with a view to selling on to clients, used to be envied for the preferential treatment they received in the world’s third largest debt market.

That treatment came in return for commitments such as buying at least 3 percent of Italy’s annual debt issuance and bidding for bonds in high volumes in the secondary market to ensure a liquid and smoothly functioning market. Another group of primary dealers has only market-making obligations.

Those commitments posed few problems during pre-crisis years. But as the bloc’s debt problems have escalated, demand for Italian bonds has dried up and primary dealers are often stuck with hefty amounts of debt that is rapidly losing value.

“The primary dealers are finding it hard because the banks aren’t making money and the tail risks are huge, volatility is bad … All this points toward failed auctions,” said a senior source at a primary dealer, who asked not to be named. The primary dealers have confidentiality agreements with the Treasury.

LONDON, Nov 16 (Reuters) – Sterling hit a four-week low on Wednesday after the Bank of England cut growth and inflation forecasts, leaving the door open for more monetary stimulus, while the dollar strengthened on safe haven flows driven by the euro zone debt crisis.

Investors sought to trim holdings of riskier currencies as the euro zone debt problems continued to threaten Italy’s ability to fund its debt at a sustainable cost, and after an Italian bank asked for extended access to ECB funds.

The pound fell 0.1 percent against the dollar to $1.5800, having touched $1.5745 — its lowest since Oct. 20. Sterling rose against the euro by virtue of its perceived less risky status, pushing the single currency 0.2 percent lower to 85.35 pence.

The Bank of England’s quarterly inflation report showed Britain on the brink of contraction and forecast that inflation would fall well below target. This indicated, as many anticipated, that it may add to its 275 billion pound asset purchase programme.

Earlier, labour market data showed Britain’s jobless rate at a 15-year high, reinforcing the weakness in the UK economy.

“It’s all bad news for sterling, but the surprise effect was limited, which is why the scale of the sterling decline is also limited so far,” said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.

After breaking below the 55-day moving average at $1.5813, which had previously acted as strong support, the next support level was $1.5719, the 50 percent retracement of the rise between Oct. 6 and Oct. 31. Below that, analysts also highlighted the Oct. 20 low of $1.5680.

LONDON, Nov 16 (Reuters) – Sterling dipped against the dollar as the euro zone’s debt crisis pushed investors into the perceived safety of the U.S. currency and as bearish bets on the pound stacked up ahead of a Bank of England inflation report expected to give a grim account of the U.K. economy.

Investors sought to trim holdings of riskier currencies as the euro zone debt crisis threatened Italy’s ability to fund itself at a sustainable cost.

The pound fell 0.1 percent against the dollar to $1.5796, nearing its lowest in nearly four weeks after breaking below the 55-day moving average at $1.5813 which had previously acted as strong support.

Sterling was steady against the euro at 85.60 pence .

The Bank of England was expected to reveal a gloomy economic outlook but falling inflationary pressure, both of which could be used to justify a fresh round of asset purchases in the coming months.

The prospect of a wave of fresh sterling supply hitting the market weighed on the pound against the dollar as investors positioned for fresh falls.

“It’s clear there’s not going to be anything particularly positive said, and so on that basis why would you want to buy sterling?,” said Adrian Schmidt, at Lloyds Bank in London.

LONDON, Nov 16 (Reuters) – Sterling dipped against the dollar as the euro zone’s debt crisis pushed investors into the perceived safety of the U.S. currency and as bearish bets on the pound stacked up ahead of a Bank of England inflation report expected to give a grim account of the U.K. economy.

Investors sought to trim holdings of riskier currencies as the euro zone debt crisis threatened Italy’s ability to fund itself at a sustainable cost.

The pound fell 0.1 percent against the dollar to $1.5796, nearing its lowest in nearly four weeks after breaking below the 55-day moving average at $1.5813 which had previously acted as strong support.

Sterling was steady against the euro at 85.60 pence .

The Bank of England was expected to reveal a gloomy economic outlook but falling inflationary pressure, both of which could be used to justify a fresh round of asset purchases in the coming months.

The prospect of a wave of fresh sterling supply hitting the market weighed on the pound against the dollar as investors positioned for fresh falls.

“It’s clear there’s not going to be anything particularly positive said, and so on that basis why would you want to buy sterling?,” said Adrian Schmidt, at Lloyds Bank in London.