Eurozone government bond yields have fallen today at auctions of new debt by Spain and Belgium, but investors remain nervous as fears mount that sovereign credit ratings will be downgraded soon.
Spain's Treasury easily sold €4.9bn (£4.1bn) of 12- and 18-month Treasury bills, above the top end of the targeted range, at rates of almost one percentage point below the 14-year highs seen in a similar auction in November.
However, not counting November's jump, it still paid levels not seen since 2007 and the yield on its 10-year bond in the secondary market rose around 7 basis points following the sale to 5.9 per cent.
Italy’s ten-year bond yield has also risen 16 basis points to 6.76 per cent as investors fret that rating agency Standard and Poor's could act on its warning over the region's debt ratings.
"While representing a clear improvement on the last auctions, today's yields remain elevated and, hence, in terms of contagion risk, these sales represent a temporary stay of execution," senior fixed income analyst at Rabobank Richard McGuire said.
"For a more lasting improvement in Spanish debt sustainability, a circuit breaker at a systemic level is required."
Yields on Belgium's short-term debt dropped over 140 basis points to 0.78 per cent from a month earlier when it raised €1.1bn for a March 2012 T-bill amid strong demand, buoyed by the formation of a new government last week.
Meanwhile, Greek funding costs rose at a sale of €1.625bn of six-month T-bills on Tuesday, at yields of 4.95 per cent, up from 4.89 per cent at the last auction on 8 November.
Analysts said further ratings downgrades were being priced into the market after Standard and Poor's warned last week that the ratings of 15 Eurozone countries could be cut if leaders failed to strike a deal on how to solve the debt crisis.