Bond yields plummet in troubled peripheral Europe

Government bond yields across peripheral Europe dropped sharply yesterday as the ECB kept open its bank emergency liquidity measures until at least the end of the first quarter of 2011.

While the ECB surprised many participants by not announcing plans for wholesale bond purchases, trader speculation the central bank was buying Portuguese and Irish bonds during Trichet's speech helped move the bonds higher. The yield on the benchmark Portuguese 10-year bonds dropped 50bp to 6.13%, while equivalent Irish bond yields fell 37bp to 8.76%. Spain, which has seen its borrowing costs jump sharply in recent days, saw its 10-year bond yield decline 22bp to 5.07%. Perceived safe haven government bonds declined, with the yield on the 10-year gilt and equivalent bund rising to 3.4...