European credit markets remained under severe stress for most parts of last year, being weighed down by intensifying sovereign debt worries across the 17-member area. With banks across Euro area facing severe liquidity crunch, the ECB conducted Long-Term Refinancing Operation (LTRO) on 21st Dec 2011, in which unlimited funding were provided to several EU banks. This in turn led to considerable fall amongst most EU government bond yields, as funds flowed from banks into the credit markets.
With the ECB set to allot funds to EU banks later today via the second round of LTRO, we may see a similar fall in bond yields in the months to come.
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