PRODUCT PROFILE

Latest Dublin Prices

Spain's yields hit 5-month low after ECB

Monday, September 10 14:31:29

Spanish 10-year yields hit five-month lows today with investors still buoyed by European Central Bank bond-buying plans, but further falls were seen capped by uncertainty over when Madrid might seek aid to trigger the scheme.

Spanish benchmark yields fell below 6 percent for the first time since May on Friday after the ECB committed to buying potentially unlimited amounts of bonds issued by struggling euro zone countries in a bid to lower their borrowing costs.

The bond purchases were, however, conditional on the countries seeking help from the euro zone's EFSF and ESM bailout funds, a step Madrid has so far been reluctant to take.

Spanish 10-year yields fell slightly to 5.68 percent , with some strategists seeing them falling to 5 percent in coming weeks if Madrid seeks help.

"We've had a good rally, the sentiment is positive and I think it will remain so near term, but the market is very wary of Spanish authorities," RIA Capital Markets strategist Nick Stamenkovic said.

"If they don't start to show an inclination towards going to the EFSF/ESM for financial assistance then markets are going to start to be increasingly nervous and we could start to see a reversal."

Shorter-dated Spanish yields , which have fallen the most over the past two months in anticipation of ECB action to tackle the crisis, rose as investors pocketed profits.

Equivalent Italian yields were also higher after Italian Prime Minister Mario Monti said his country would not accept additional conditions being attached from any ECB support.

"It makes sense to see some stabilisation and even a limited setback due to profit-taking given the huge rally we saw," said Patrick Jacq, a strategist at BNP Paribas.

"The market is waiting for a decision from Spain... within the next couple of weeks otherwise if Spain rules out any support from the EFSF then there will probably be selling pressure."

Traders said flows were light with investors wary of taking big positions before Germany's top court rules on the legality ESM fund on Wednesday, though many expect a positive outcome.

All 20 legal experts polled by Reuters last week expect the constitutional court judges to let the ESM and a European fiscal discipline pact go ahead, but most expect them to add tough conditions for future bailouts.

"The market is bound to be jittery before the German... decision but I think it will be passed," a trader said.

(C ) Reuters