Draghi speech soothes euro bond markets

THE amount it costs European governments to borrow from the financial markets eased a little yesterday, after a pair of closely-watched debt auctions in Spain and France were more successful than expected.

Bond traders also took succour from European Central Bank president Mario Draghi (pictured), who appeared to suggest he would be willing to expand purchases of sovereign debt if the Eurozone were to negotiate a new “fiscal compact”.

Such a fiscal compact would force highly-indebted governments like Italy and Greece to cut their debts and deficits, and is the “most important element to restarting credibility”, Draghi said.

If Eurozone leaders can strike an agreement, “other elements might follow”, he said. His remarks were widely interpreted as a sign that the ECB would be willing to buy even greater quantities of Eurozone sovereign debt.

Yesterday, Spain paid an average of yield of around 5.4 per cent at an auction of €3.75bn of bonds, the highest since before the launch of the euro but still well below the seven per cent park that is seen as unaffordable.

France also saw good demand at the sale of €4.35bn of long-term bonds, with the 10 year yield at 3.18 percent. The premium investors charge for holding its bonds over German bunds fell to 93 basis points, its lowest in a month. The yield on Italian 10-year bonds – which has hovered close to seven per cent in recent weeks – fell by 37 basis points to 6.61 per cent.