Bearish pressure has returned to the European debt market following the rally produced by the European Central Bank's bond purchase plan and the German Constitutional Court's favourable ruling for the European Stability Mechanism (ESM). Also positive for the euro is the victory by the 'pro-euro' liberals in the Dutch elections.

Although there has been a surge of euro-positive news, investors will hold back on their spending sprees until they get more answers to the remaining unknowns such as: will Spain finally request a bailout?; will China's economic slowdown continue?; will the Federal Reserve announce QE3?; etc.

With these questions remaining to be answered, the Spanish risk premium has pulled back to 409 basis points after starting Thursday's European session at 401. The Spanish 10-year bond yield has risen from 5.62% to 5.71%.

Other risk premiums on Thursday morning, as follows: Italy: 346bp, Greece: 1,904bp, Ireland: 375bp, Portugal: 653bp, and France: 59bp.

Citi Spain strategist Jose Luis Martinez Campuzano pointed out that 34 out of 47 economists expect the Fed to announce a new round of quantitative easing this Thursday and seven expect it to be announced by the end of the year.

SC

Related share prices