Spain passed a key test on Thursday by easily selling €3.1bn (£1bn) of debt at yields well below recent peaks despite investor doubts that the European Central Bank will act to help struggling Eurozone economies at its meeting later in the day.
Although the Treasury was forced to pay the second highest yield on its 10-year paper since the launch of the euro in 1999, analysts said the auction was solid in the current context. The cost of borrowing over 10 years was 6.65 per cent, nearly a full percentage point below the 7.64 per cent peak in the secondary market last week.
The results lifted market sentiment, with the premium which investors pay to hold Spanish over German debt falling after the auction.
Spanish bond yields, which had hit euro-era highs due to the possibility that Madrid would have to be bailed out, fell last week after President Mario Draghi said the ECB would do whatever it takes to save the common currency, within its mandate.
In the same spirit, Italian borrowing costs also fell at an auction on Monday, suggesting that Draghi has at the very least talked yields down