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Draghi’s Euro Remarks Push Down Spain, Italy Yields

Bond yields in Europe's shakiest large nations were falling Thursday after the president of the European Central Bank used no-matter-what language to say the euro currency used by 17 countries would be kept intact by policy setting leaders.

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro," central bank President Mario Draghi said during a speech in London, according to a Bloomberg report. "Believe me, it will be enough."

Euro Flag
Euro Flag

His comments were made around the rising yields in EU nations that are seen as among the weaker members of the union, in particular Italy and Spain. Following the speech, yields in both countries were coming down.

For Italy, yields were dropping on every maturity from the 1-year through the 30-year, FactSet data show. The most pronounced percentage decline was 14%, or 68 basis points, on the 2-year, which was yielding 4.18%. The highest yield was on the 15-year, down 23 bps, or 3.3%, to 6.64%. The 10-year yield was down 28 bps to 6.08%. In all cases, yields are still higher for the week and over the past three months.

Spain's yields were also down across the board, including the 10-year, which fell below 7% to 6.94%, a pullback of 44 bps, or 6%. The 2-year was yielding 5.47%, down 66 bps, or 10.8%.

High interest are normally assigned to borrowers that investors view as riskier places to put their money. Greece and Ireland have been in the same situation in recent months as traders, worried about getting their investments back, insisted on larger rates. Lately though, the attention has shifted to Spain and Italy. With Portugal, those countries make up the "PIIGS," a group whose finances have had markets on edge in Europe and around the world.

Draghi said it was within the ECB's power to act if excessive rates on sovereign bonds threaten to "hamper the functioning of the monetary policy transmission channel," the Bloomberg report stated. The notion of euro support coming from a very large, deep-pocketed buyer of bonds -- the ECB -- is the type of signal that's capable of sending prices on debt issues up, and therefore, yields lower.

The healthier nations of the euro zone were another matter. Yields were also declining in France, according to FactSet, but yields are much lower there owing to the perceived safety of its economy. For instance, the French 10-year, which has a high of 3.71% for the past year, was yielding 2.19%. In Germany, the biggest of Europe's economies that's seen as a very safe investment, yields rose. The 10-year yield was up 7 bps to 1.32%.

Draghi's comments also improved the mood in the equity markets. In the U.S., the Dow was up more than 200 points, and the S&P 500 was gaining 20.