European Central Bank President Mario Draghi disappointed investors hoping for explicit promises for central bank assistance to Spain and Italy in a press conference this morning.
That disappointment was immediately reflected in sovereign bond yields, a proxy for each government's borrowing costs. The yields on Italian and Spanish 10-year bonds shot higher when investors realized that no definitive moves were forthcoming during Draghi's speech.
Yields for 10-year Italian and Spanish bonds closed the day 33 basis points and 43 basis points higher, respectively. At the end of the day, the yield on the Italian 10-year was 6.33 percent, and the yield on the Spanish 10-year was 6.17 percent.
Interestingly, this sharp spike in yields was not reflected in shorter-term borrowing, in particular for bonds that do not mature before the ECB's two three-year long-term refinancing operations (which allowed banks to borrow at incredibly low rates from the ECB). The Spanish two-year yield actually fell by 11 bps while the yield on Italian bonds of the same maturity fell by 3 bps.
Take a look at the percentage change Spanish (green) and Italian (orange) 10-year yields today:
Click for larger image.
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