BMO Financial Group

BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

August 14, 2012 07:03 ET

Harris Private Bank Market Update: Spain and Italy Continue to Experience Financial Distress

CHICAGO, ILLINOIS and TORONTO, ONTARIO--(Marketwire - Aug. 14, 2012) - With an eye on the financial crisis that continues to impact the Eurozone, Harris Private Bank's latest Market Update notes that despite European policymakers' best intentions, long-term sovereign bond yields in Spain continue to hover at dangerous levels. With Italy's debt crisis also sending up red flags, these two countries could require major financial bailouts in the near future.

"While many people head out for vacation during the summer months, the capital markets do not take a break," said Jack Ablin, Chief Investment Officer, Harris Private Bank, part of BMO Financial Group. "In fact August 2011 saw widespread stock sales, prompting the Euro Stoxx 50 Index of major corporations to drop 8.6 percent in dollar terms. Now, in the summer of 2012, countries such as Spain and Italy continue to experience financial distress. Italy is facing borrowing rates that Spain stared down three months ago. Spain will need a large cash infusion soon, with Italy likely following suit."

Since Spain's interim low in early March 2012, the yield on its 10-year government obligations have trended toward seven percent. Industry reports suggest that before the end of 2014 the Spanish government must borrow EUR250 billion to cover its budget deficit and bond redemptions.

Furthermore, short-term yields on Spanish and Italian debt have fallen several percentage points in the last two weeks, indicating the market is anticipating a major Spanish bailout from the European Central Bank. Based on the trend in Italian debt spreads, Europe's third largest economy may need a major Spanish-style bailout as well.

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About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $525 billion as at April 30, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

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