Spanish and Italian bonds yields rose 8/6/2012

Spanish and Italian bonds yields rose 8/6/2012 : Spanish and Italian bonds rose further on Monday, led by shorter-dated paper which has met revived demand on prospects of eventual ECB buying but details of the promised anti-crisis steps were seen key for more gains.

Two-year Spanish yields have more than halved from euro-era peaks above 7 percent hit on July 25 to 3.42 percent since ECB President Mario Draghi said on Thursday bond purchases under new measures being hammered out would target shorter-dated debt.

The gap between two- and 10-year Spanish yields hit its widest in the euro era at 338 basis points and that differential could widen to 400 bps in coming weeks

Spanish 10-year yields fell 14 bps to 6.8 percent, retreating further from euro-era highs of 7.78 percent hit early last week, with equivalent Italian yields 6 bps lower at 6.0 percent. Two-year paper yielded 3.11 percent, down more than 20 bps on the day.

Strategists and traders said steepeners – bets that short-dated bond prices would rise faster than long-dated ones – were the position to take on Spanish and Italian debt.

Spanish Prime Minister Mariano Rajoy signaled for the first time on Friday that he may seek a full-blown aid package but said he had not yet made a decision.

However, questions remained. Germany remains opposed to the ECB resuming bond purchases. The issue of how the euro zone planned to boost the resources of its yet-to-be ratified ESM rescue fund was also unresolved.

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