LONDON: Italian and Spanish bond yields fell on Tuesday on hopes that banks will borrow a large amount of three-year funds from the ECB later this week and buy the higher-yielding bonds issued by the two countries.
Italian 10-year yields fell 10 basis points to 6.76 percent, narrowing the spread over Bunds to 485 bps.
Spanish 10-year yields were 6 bps lower at 5.20 percent.
However, there is room for disappointment with many analysts believing the banks may use the funds to roll over their own debt rather then buy government bonds that could eventually cause them mark-to-market losses.
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