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Thursday, August 2, 2012

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CHART OF THE DAY: European Yields Soared After Lackluster ECB Showing

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Thursday, August 2, 2012


	European Yields Soared After Lackluster ECB Showing European Central Bank President Mario Draghi disappointed investors hoping for explicit promises for central bank assistance to Spain and Italy in a press conference this morning. That disappointment was immediately reflected in sovereign bond yields, a proxy for each government's borrowing costs. The yields on Italian and Spanish 10-year bonds shot higher when investors realized that no definitive moves were forthcoming during Draghi's speech. Yields for 10-year Italian and Spanish bonds closed the day 33 basis points and 43 basis points higher, respectively. At the end of the day, the yield on the Italian 10-year was 6.33 percent, and the yield on the Spanish 10-year was 6.17 percent. Interestingly, this sharp spike in yields was not reflected in shorter-term borrowing, in particular for bonds that do not mature before the ECB's two three-year long-term refinancing operations (which allowed banks to borrow at incredibly low rates from the ECB). The Spanish two-year yield actually fell by 11 bps while the yield on Italian bonds of the same maturity fell by 3 bps. Take a look at the percentage change Spanish (green) and Italian (orange) 10-year yields today: Click for larger image. Read »

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