Yields on Greece bonds continued to increase given political uncertainty. However, expectations for ECB QE have prevented contagion risks from spreading to peripheral euro-zone bonds. Spanish consumer prices declined the most in more than five years in December, reinforcing expectations that the ECB will announce sovereign bond buying in January 22. Italian government sold almost EUR3bn of 10-yr bonds at an average yield of 1.89% on Tuesday, which was lower than 2.08% at the previous auction. This has underpinned sentiment towards Italian bonds, with the yield on 10-yr bond falling 9 basis points; the equivalent maturity Spanish debt fell to 1.593%.
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