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With rumors of negative credit ratings actions in Europe, major equity benchmarks in the region are down sharply today. In the fixed income universe, though, markets are rallying. In Germany, the government auctioned off 10-year Bunds at a record low yield, and those Bunds are now trading at a yield of 1.24%.

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Elsewhere in the region, spreads are also narrowing. The charts below show the spreads between 10-year sovereign debt of Italy and Spain relative to Germany. As shown, spreads on the debt of both countries actually declined today, and as of yet have shown no signs of widening.

(click to enlarge)

Source: Euro Spreads Decline