END) Dow Jones Newswires May 31, 2012 22:19 ET (02:19 GMT)

0219 GMT [Dow Jones] Korea government bonds are higher, helped by continued risk aversion amid worries over the euro zone debt crisis, while data tips weaker growth in China and the U.S. "Yields of local bonds, like those on U.S. Treasurys, are already trading at very low levels, but there is no clear momentum yet to revive risk appetite in the market," says Kim Se-hun, a fixed-income analyst at Daishin Securities. "The bullish run for local bonds is expected to continue in June. The three-year yield may fall near the BOK's policy rate of 3.25%" in the near term, he adds. The three-year yield is down 2 bps at 3.30%, the five-year yield is down 3 bps at 3.40% and the one-year yield is down 4 bps at 3.65%. Lead June bond futures are up nine ticks at 104.74. 

Daily Forex Brief London: Thursday 31st May 2012

Dollars, yen and G4 bonds smell of roses

More blood on the streets of financial markets yesterday and overnight, with risk assets reversing still further and safe haven currencies and bonds smelling like roses. Interestingly, while the dollar remained very much in favour and money poured into US treasuries, it was actually the Japanese yen that shone even more brightly. Indeed, USD/JPY is now below 79, which no doubt will both alarm and disappoint Tokyo in equal measure. Although bond yields for Europe's fiscal miscreants soared, the price action in the single currency was more measured, as it drifted gradually down below 1.24, a fresh 2yr low. High-beta currencies such as the Aussie fared worse –it fell below the 0.97 level overnight. In general, May has been a dreadful month for emerging currencies – for instance, the likes of the Russian ruble and the Polish zloty have suffered a 10% decline thus far, while the Indian rupee has dropped to a record low. Likewise, commodities have been hard hit – Brent crude fell to USD 103.34 overnight, down more than 3% over the past 24 hours, while the copper price lost another 2.5%.

Daily Forex Brief London: Wednesday 30th May 2012

Stay away in May

Assets prices were not unlike a volcano yesterday – all quiet on top, but a bubbling cauldron of fire and friction underneath. Although most now accept that the end is nigh for Greece in terms of continuing participation in the eurozone, events in Spain are moving so incredibly quickly that the centre of global systemic risk has now shifted indelibly to Madrid. Yesterday's news that retail sales in Spain collapsed by 16% in real terms in the year to April confirmed that this is another European economy in freefall. Almost everywhere you look in southern Europe the news is disturbing. Unsurprisingly, confidence in the single currency continues to ebb away; the euro dropped to a new 2yr low of 1.2457 overnight. In the month of May alone, the euro has fallen by almost 6%. Once more it is the dollar and the yen that are winning the forex popularity contest, while G4 bonds continue to set new record lows in yield. Gold is still really struggling (see below for a more detailed discussion) – it fell to USD 1,545 overnight. Oil prices are still plunging, providing further evidence that global demand has waned markedly in the current quarter. Brent crude fell below USD 107 last night, a fall of almost USD 20 in less than two months. That old investment adage 'sell in May and go away' has once again been remarkably prescient.

Daily Forex Brief London: Tuesday 29th May 2012

Rajoy scuppers Bankia bailout optimism

At yesterday's hastily convened press conference Spanish Prime Minister Rajoy poured some cold water over weekend reports of a EUR 19bn bailout for Bankia, claiming that no decision had yet been taken. Rajoy further contributed to the climate of fear and uncertainty by asserting that Spanish banks did not need recuing (a claim which he surely will regret in due course), while arguing that Spain's debt sustainability problem needed to be resolved. He also argued that the EFSF and ERM ought to be able to recapitalise European banks directly, rather than needing to go through national governments. Unfortunately, Rajoy's latest missive only conflagrated existing paranoia regarding Spain's increasingly desperate financial predicament (see below). The Pandora's Box that is the dodgy loans on the balance sheets of Spanish banks is now spilling forth into full view, and it is every bit as bad as many of us suspected.

Daily Forex Brief London: Monday 28th May 2012

Glimmers of hope

The weekend polls in Greece have shown the pro-bailout parties gaining ground, with two showing that they could receive enough of the votes to form a viable coalition. This has given the euro a modest lift in Asia trade, allowing a break above the 1.26 level, up from the 1.2496 year low carved out last week. Still, it's another three weeks until we will have the election results, so the road ahead remains fairly daunting for the single currency. We also have the Irish referendum on Thursday of this week on the European Fiscal Treaty. Meanwhile, as the Spanish government moves to inject fresh capital into Bankia, there are also moves to greatly enhance the deposit guarantee scheme protection offered to savers in European banks. These modestly encouraging developments, together with the fact that last week was the worst of the year for the single currency, increase the risk of some short-covering rallies this week, but there can be little arguing that underlying sentiment remains decidedly fragile.