After weak demand for German sovereign debt, exchange traded funds tracking European securities hit an air pocket Wednesday as investors grew increasingly worried that the Eurozone is faltering and the region’s safest bet is no longer immune to the spreading financial contagion.
Vanguard MSCI Europe ETF (NYSEArca: VGK) was 2.89% lower at last check Wednesday and sector-focused ETF iShares MSCI Europe Financials Index (NYSEArca: EUFN) was down 3.45%. Other country-specific ETFs, such as iShares MSCI Germany Index (NYSEArca: EWG), iShares MSCI France Index (NYSEArca: EWQ) and iShares MSCI Italy Index (NYSEArca: EWI), were all in the red.
Germany was only able to sell €3.644 billion ($4.92 billion) of the €6 billion in 10-year bunds with an average yield of 1.98% on Wednesday, The Wall Street Journal reports. [Keep an Eye on the Debt Crisis with German, Italian Bond ETFs]
“It is now hitting the heart of Europe,” Simon Derrick of Bank of New York Mellon said in the article. “Germany has spent the last 25 years building the reputation of its sovereign-bond market, and it will not accept having Greece jeopardize that. Either Greece conforms to the euro rules, or it knows where the door is.”
However, others feel that the Eurozone as a whole needs restructuring or even so-called euro bonds to fix the ailing system.
“The auction reflects the deep mistrust [of the]euro project rather than a mistrust [of]German government bonds,” Danske’s chief analyst Jens Peter Sorensen said. “As some investors say regarding the euro project—if it is broke, then fix it.”