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Bond spreads plunge, Italian bonds sell out and markets rise

October 18, 2012 Ansa
Bond interest rates and spreads plunged to new lows on Wednesday, while the Italian treasury saw record orders flood in for its bond issue Thursday.

Italy's third bond placement in six months saw 10 billion euros worth of orders in three days of negotiations. Wednesday alone saw nearly 5 billion euros worth, or roughly double the value of orders on each of the previous two days. The extraordinary success of the placement was helped by the fact that plunging spreads on the secondary market made the Italian treasury's short term bonds more lucrative than the secondary market equivalent. Orders from institutional investors helped double the value of Wednesday's orders whose numbers were roughly on par with Tuesday - 45,000 versus 41,000, respectively.

The yield on Italian 10-year bonds in the secondary market dropped to 4.77% on Wednesday, the lowest it has been since June 2011 - well below the 4.90% threshold called "sustainable" by Italy's treasury director-general of public debt, Maria Cannata in an interview with Sky TG24 on Tuesday.

The spread between the same bonds and the German benchmark counterpart sank below April levels to close at 313 points. Rating agency Moody's decision not to downgrade Spain's sovereign debt gave a big boost to Spain on Wednesday.

Spanish and German 10-year bonds saw their spread narrow 41basis points to close at 383. The yield on the Spanish paper was 5.47%. "The worst - that is, the fear of an eurozone explosion - has passed," declared French President Francois Hollande told the newspaper Le Monde. "The best has yet to come. It is waiting for us to build it," Hollande added. Meanwhile, European markets rose for the second day in a row.

Milan's FTSE MIB index rose 1.56% to surpass the 16,000 point threshold to close at 16,233 points. London's FTSE-100 index rose 0.69%. Paris's CAC 40 index gained 0.78%. Frankfurt's DAX index climbed 0.29%. photo: French President Francois Hollande.
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