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High chance of further euro weakness from political developments

GREECE'S refusal to engage with the international "troika" of creditors will worsen further one of the chief worries about the European Central Bank's (ECB) asset purchase programme due to start next month - a shortage of prime government paper in the euro area.

As financial markets fret about a potential halt to ECB-approved emergency liquidity for Greece, capital is likely to flow further into the "havens" of top-rated government bonds around Europe. The Bundesbank's undertaking to purchase roughly 15 billion euros (S$23 billion) a month of securities, of which the lion's share would be German sovereign bonds, is looking problematic a month before the programme starts.

Many traditional domestic...

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