LONDON: The premium investors demand to hold Spanish government bonds rather than German Bunds fell from intraday highs on Friday with traders saying domestic investors were stepping in to buy the country's debt after yields spiked earlier. Equivalent Italian and Portuguese spreads also retreated off intraday peaks on market talk that the European Central Bank was in the market, although traders said they saw no evidence of any purchases.
The yield gap between 10-year Spanish yields and equivalent German Bunds was last at 227 basis points from 232 bps hit after Moody's downgraded the sovereign's rating by a notch to Aa2 and warned of further cuts. It was still slightly wider on the day.
"If spreads get marked wider at the open, there's natural domestic support that will buy on dips and if there's no actual selling flow to oppose that then we'll see spreads come back in," a trader said.
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