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Markets rise despite worrying Italian debt auction

After heavy losses experienced during the risk-off trade yesterday, and a relatively shaky start to trading today, European indices gained ground through the afternoon to post respectable gains by the close. The FTSE 100 finished at 5634.7, a 40 point or 0.7% gain for the day, with the German DAX more than 1% higher and indices of southern Europe (Spain and Italy) appreciating by closer to 2%.

The gains came despite a doubling of short term borrowing costs for the Italian government, with investors demanding 2.84% in a one year debt auction this morning. The yield represents a significant increase from the 1.405% that was paid around one month ago, and reflects concerns regarding contagion from Spain and sluggish implementation of domestic structural reforms. German bunds fell after a 10 year auction failed to draw sufficient bids for its maximum target, although the record low yields of 1.77% would have certainly been a deterrent for some investors. Ten year Spanish and Italian bonds snapped days of losses in the secondary market as an ECB board member Benoit Coeure said the central bank could revive bond purchases to support Spanish debt.

This was posted in Bdaily's Members' News section by James .