Spanish bond yields fall as Greece forms new government

Spanish 10-year bond yields dipped back below 7% today, as investors eyed an expected stimulus package from the US Federal Reserve, and with sentiment lifted after Greece managed to form a new government.

The yield on benchmark Spanish debt was down 27 basis points to 6.77% – despite the previous day’s auction showing Madrid had to pay 5% to borrow for just a year.

The move out of the danger zone above 7% comes as many investors hold their breath ahead of an announcement from Fed chairman Ben Bernanke.

Bernanke (pictured) is expected to reveal an extension of “Operation Twist,” the programme launched last year which has aimed – and succeeded – in pushing down longer-term interest rates in an attempt to support the economy via bond-buying.

The S&P 500 had closed higher for four straight days and reached its highest level since early May yesterday amid speculation policy makers will do more to safeguard the economic recovery.

Today it was flat shortly after opening, with the Dow moving in a similar way, as investors await Bernanke’s speech.

Previous easing actions by the Fed have lifted growth-focused assets such as stocks and commodities, and gold tends to welcome central bank stimulus too.

Meanwhile Greece has also cheered investors, after political leaders agreed to form a new government headed by New Democracy party head Antonis Samaras following weeks of political manoeuvring.


This article was first published on InvestmentWeek

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