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The LTRO offered multiple levels of market relief:
The result has been a massive tightening of spreads across most sovereign issuers. Yields on two-year Italian government bonds went from 7% in November to 1.4% as of mid-March. Meanwhile the Itraxx, a proxy for corporate spreads in Europe, went from 205 basis points in November 2011 to 125 basis points as of mid-March 2012. However, while peripheral government bonds and risky assets from core eurozone countries both benefited from contracting spreads, information on trading flows have indicated differences in investors’ appetites for such securities with risky assets from core countries benefiting from wider support while government bonds in peripheral eurozone countries benefitting almost exclusively from demand driven by domestic investors. Banks, and indeed other types of investors outside of Italy and Spain tended not to participate in the rally of Italian and Spanish government bonds (see Figure 2).
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