Investors Assess Credit Suisse’s Rescue as the Safe-Haven Yen Rises in Forex

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The safe-haven yen rose on Monday as investors weighed in on the recent news surrounding Swiss bank Credit Suisse. In light of the global financial crisis, the embattled credit giant has been rescued by UBS through a cut-price takeover.

Credit Suisse Additional Tier-1 (AT1) bondholders will be wiped out under the deal. This has caused an outcry from bondholders who feel that the bank and government regulators are not respecting their rights.

Investors Seek Safe-Haven Yen Amid Financial Turmoil

The yen rallied on Monday as the fall in Asian bank stocks overnight spread to Europe. This led investors to seek safe-haven investments, such as the yen, for protection against further financial turmoil. Consequently, the dollar slid to its lowest since February 10th at 130.55 yen and was down 0.66% at 130.96.

“The immediate concern now is that AT1 bonds were completely written down, which is contrary to convention because equity holders are supposed to be higher risk than bondholders,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “That’s disconcerting to a lot of people.”

Europe’s banking stocks index (.SX7P) fell sharply in early trading on Monday, declining almost 6% as investors reacted to the Credit Suisse rescue news. The sell-off was fuelled by concerns over the AT1 bondholders, who now face an uncertain future.

However, as the day progressed, nerves settled somewhat as investors re-assessed their positions. By the close of business, SX7P had recovered some lost ground and was last down 1.65%.

Euro and Pound Rise, Swiss Franc Falls Against Dollar

The euro rose 0.26% against the dollar to $1.069 on Monday as investors continued to weigh in on the Credit Suisse rescue announcement. The British pound was also higher, rising 0.32% to $1.222 after starting lower in the morning session.

Meanwhile, the safe-haven Swiss franc fell against the dollar, with the greenback rising 0.22% to 0.928 francs.

Overall, markets have become more confident following news of Credit Suisse’s rescue package. However, there remains uncertainty over how AT1 bondholders will be affected by any restructuring plans in the future.

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