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ORIGINAL (8:18 AM EDT): Peripheral bond yields are diving and Italian shares are absolutely booming so far today, as investors reassess the immediacy of fears about an imminent Greek exit from the eurozone and the debate about eurobonds takes centre stage ahead of an EU summit in Brussels tomorrow.
Italy is up a full 2.5 per cent with three and a half hours left in the trading day. Meanwhile, yields on Spanish 10-year government bonds have dropped 19 bps and yields on Italian bonds of the same maturity are off 18 basis points. That puts them at 6.1 per cent and 5.6 per cent, respectively. Perhaps more importantly, yields on shorter term borrowing for both countries have fallen a comparable amount.
The EUR/USD trade appears to be the one holdout here, falling for the day. However, the euro has remained consistently above $1.26 since late last week, suggesting a reversal in the downward trend we saw earlier this month. This is what traders think is generating strength in the euro >
The rally continues in Europe, and risk is on…for now.
UPDATE (10:55 PM EDT): Italy is just going nuts right now, with the FTSE MIB up 3.4 per cent! What a change from the negativity we saw late last week.
Continued chatter about French, Spanish, and Italian support for eurobonds is likely driving some of this enthusiasm. With the second largest public debt-to-GDP burden in the euro area, Italy would be the prime beneficiary of such a plan.
Earlier declines in yields on Italian and Spanish government bonds appear to be holding strong.