Spain's risk premium, the difference between the 10-year bond yield and the German benchmark yield, has been following a downwards path, dropping 30 basis points on Thursday to end the day at 334 basis points. On Friday morning, it had already reached 330 basis points with the 10-year bond yield at 4.89 percent, a level unseen since March of last year.

On Thursday, the Spanish Treasury carried out a successful debt auction, issuing bonds for €5.82bn, well above its €4-5bn target range.

As a test of the primary debt market for the first time this year, Spain issued two-, five- and 13.5-year bonds and was met with solid demand. The five-year paper, in particular, fetched a yield of 4.769% compared to 4.033% at the prior auction.

"The Spanish Treasury confronts 2013 in a more comfortable situation than last year, also taking into account the improvement in market conditions at the start of the New Year," the Spanish Treasury said on Tuesday.

Italy has also benefited from the lower pressure on the debt markets. It issued one-year bonds for €8.5bn at a yield of 0.864%. On Friday, it will look to place another €3.5bn in 2 and 4-year bonds.

SC

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