Forex News – Euro strengthens after Italian bond auction

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The euro rebounded after news of a successful Italian bond auction this morning as the European Central Bank stepped in to buy the indebted country’s debt.

The Italian government managed to sell 5 billion euros worth of bonds. There is concern that with recent surges in Italian bond yields the government would face a problem raising funds in the debt markets and would soon be locked out of the bond markets.

This morning Italian bond yields began to retreat from record highs reached yesterday. The yield on Italy’s 10-year bond dropped 26 basis points. The Italian two-year note yield slid 57 basis points, after jumping 82 basis points yesterday.

This helped lift the euro to 1.3628 by 10:45 GMT, rising from a European session low of 1.3482 earlier.

However, uncertainties still linger amongst investors who are unsure as to the political situation in Italy and what the future holds after Berlusconi leaves.

Meanwhile there have been rumours this morning that the ECB is holding and emergency meeting to discuss the potential of unlimited SMP commitment which will be tied to a new Italian government being installed. SMP stands for “Securities Markets Programme” and involves intervening in the markets by the ECB to ensure depth and liquidity in the markets.

This has helped boost the euro.