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Should European interest rates start to rise, investors may switch back to less risky government bond markets particularly as higher interest rates tend to put heavily indebted junk-bond issuers under stress.
ECONOMIST: Junk bonds: As European as burgers and fries | The
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Yields in Spain and Italy, which had soared Tuesday, pulled back as investors took some solace from European Central Bank Executive Board member Benoit Coeure, who suggested that the central bank could turn to its bond-purchase program again to ease stress in Spain, where some feared the bond-market selloff would accelerate should 10-year yields top 6%.
WSJ: European Stocks Catch a Bounce
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The European Central Bank has raised interest rates a quarter point to 1.5pc to curb inflation and signalled more to come, despite faltering growth in southern Europe and acute stress in peripheral bond markets.
FORBES: The Inevitable Failure of the Euro
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Italian and Spanish bond yields rose Monday, which is a further sign of increasing stress in the European Union.
FORBES: A.M. Kitco Metals Roundup: Gold Up on Fresh Safe-Haven Demand; EU Worries Resurface
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Global bank shares, the euro, and Italy's bond and stock markets fell back on fear the results may unleash new financial stress in the eurozone.
BBC: Markets fall on fear of Italy post-election deadlock
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The actual bond-buying program didn't start until last month, however, and skeptics stress it is too early to declare victory.
WSJ: World Shakes Off Nikkei's 7.3% Plunge