Italy, Spain outperform as ECB optimism gains pace

Italian and Spanish bonds extended their recent rally on Tuesday as optimism grew that banks would borrow large amounts of cheap cash at the European Central Bank's three-year tender and reinvest it in
higher-yielding euro zone debt.

Spanish 10-year bond yields fell for an eighth straight session to hit their lowest in more than two months while slowing investor demand for safe-haven German debt pushed Bund futures down by a full point.

"(This) is led by the excitement about the upcoming ECB tender... in this thin market without any supply to take down this obviously gives the periphery some real tailwinds," said David Schnautz, strategist at Commerzbank in London.

Momentum has grown behind the view that investors would return to support peripheral debt thanks to an attractive carry trade made possible by the ECB, whereby banks borrow cheaply at the central bank to invest in bonds with a much higher return.

Read Full Article from Reuters

- Posted: 2011-12-20 11:14:00

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