PARIS: Rates of return on Spanish and Italian benchmark bonds eased Tuesday on improving sentiment after eurozone ministers approved a first slice of rescue loans for Spanish banks.
As trading wound down, the yield on 10-year Spanish debt had dropped to 6.778 percent, sharply lower than the danger level of 7.023 percent at close on Monday.
A rate above 7.0 percent is believed to be unsustainable and a strong indicator that a eurozone country will require a bailout.
Yields on Italian 10-year debt also fell to 5.912 percent from 6.088 on Monday. Rates of more than 6.0 percent are considered unsustainable over the long term.
Eurozone finance ministers agreed late on Monday to offer Spain 30 billion euros ($37 billion) this month to help its distressed banks.
They also extended a deadline for Spain to cut its public deficit to the EU's 3.0 percent limit by one year to 2014 because of the difficult economic conditions it faces.
Natixis analyst Jean-Francois Robin said: "Investors are pleasantly surprised and relieved that concrete decisions were made on releasing this first tranche."
But at Bank of Tokyo-Mitsubishi, Derek Halpenny disagreed.
"There is really little here that will get Spanish yields to fall to any great degree and there remains questions over how quickly anything can be done in order to bring yields lower," he said.
"The longer yields at the long-end remain here, the greater the risk of renewed turmoil," Halpenny warned.
Greece meanwhile raised 1.625 billion euros at slightly lower rates in a six-month treasury bill sale, two days after the new government secured a confidence vote in parliament.
After Ireland last week, indebted eurozone countries have been able to place very short-term paper, with investors apparently confident they will be paid back.
On the market for 10-year sovereign debt meanwhile, benchmark German Bunds traded with a yield of 1.315 percent, close to their level of 1.320 percent late on Monday.
French 10-year bonds traded at 2.385 percent, down from 2.481 percent.
Outside the eurozone, comparable British debt traded essentially unchanged at 1.584 percent, while the rate on 10-year US Treasury notes fell to 1.511 percent from 1.513 percent.
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