Italian two-year yields plummeted to their lowest levels since October 2010 Thursday, as investors poured large amounts of cash borrowed at the European Central Bank's liquidity operation into government debt.
Longer-dated debt also benefited, as did other peripheral nations including Spain.
The Italian 10-year benchmark yield fell close to 5%, having been above 7% in early January.
Financial institutions borrowed EUR529.5 billion Wednesday at the ECB's second three-year longer term refinancing operation, slightly more than expected. The first three-year LTRO in late December had already fueled sharp declines in peripheral bond yields, and these gains were extended.
A "wall of money" following the LTRO began flowing into the bond market, with hefty redemptions of Italian bonds this week also supporting flows, a London-based trader said.
Italian two-year bond yields fell to 1.87%, down 19 basis points on the day, while 10-year yields were down 11 basis points at 5.07%, according to Tradeweb. Spanish 10-year yields declined by seven basis points to 4.88%.
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