Spanish Yields Reverse Course on ECB Buying and Rumors of IMF Deal

Spanish Yields Ease Off Highs On ECB Buying, IMF Talk

Last update: 11/17/2011 10:35:00 AM

LONDON (Dow Jones)–Spanish bond yields eased off euro era highs hit earlier Thursday as the European Central Bank bought the country’s bonds and markets hoped that the ECB could use the International Monetary Fund to lend money to euro-zone governments threatened with insolvency.

The yield on the benchmark 10-year Spanish bond was at 6.50% as of 1512 GMT, according to Tradeweb data, having climbed to a euro era high of 6.75% earlier.

Spanish bonds had tanked after yields soared at a sale of 11-year bonds, raising concerns that the country could be shut out of financial markets if borrowing costs continued to rise.

A rise above 6.50% on the 10-year government bond hastened a rise in Italian yields above 7%, a level that in the past toppled Greece, Ireland, and Portugal and forced them into seeking external assistance.

However, Spanish bonds did recover off their worst levels on support from the ECB, which also bought Italian bonds, helping pull the 10-year Italian bond yield below the psychological 7% mark.

Yields on bonds issued by the so-called peripheral euro-zone countries also came off their highs after two sources familiar with the matter said a proposal that would call on the ECB to lend money to the IMF to finance bailouts for countries in need could resurface despite opposition from the ECB and Germany.

The moves in Italy and Spain also aided a recovery in other euro-zone bond markets, notably France, which had earlier seen its borrowing costs relative to Germany hit euro era highs.

At 1512 GMT, the 10-year French bond was yielding 3.60%, off the session high of 3.81%.

The 10-year French/German yield spread was 15 basis points tighter at 174 basis points, having widened to a euro era record above 200 basis points earlier Thursday.

Meanwhile, German bunds pared gains, with the futures contract due in December falling by 61 ticks to 137.54.

-By Neelabh Chaturvedi, Dow Jones Newswires; + 44 (0)207 842 9495, [email protected]