Global debt markets giddy with excitement

October 27, 2011: 4:58 PM ET
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NEW YORK (CNNMoney) -- It was a beautiful day for risky assets as investment banks raced to sell new bonds and investors gobbled up Europe's sovereign debt.

Early Thursday morning, European leaders finally settled on a far reaching plan that will force Greek bondholders to take a 50% haircut and give the region roughly $1 trillion to bail out troubled countries through a leveraged European Financial Stability Facility.

"The crisis in Europe is basically over," said Gennaro Pucci, the chief investment officer at PVE Capital, a London hedge fund with $500 million in assets under management. Until a few weeks ago, PVE Capital had placed massive bets against the sovereign debt of many European countries.

Like Pucci, many investors changed their tune today, reversing bets against bonds or simply moving from cash into riskier assets.

Dow soars 400 points on Europe deal

Prices for the sovereign debt of most EU nations spiked, causing yields to fall. Yields on Greek bonds dropped nearly 8%, Spain and Portugal's yields each moved down about 2%.

And even in Germany, which will be paying for much of the bailout, sovereign debt yields still fell slightly as investors bought more German bonds.

Meanwhile, companies and countries raced to bring bonds to the market. Korea's Development Bank sold new debt, while the Republic of Namibia issued its first-ever international bonds. On the corporate side, BP (BP), Verizon (VZ, Fortune 500), US Bancorp (USB, Fortune 500), and Morgan Stanley (MS, Fortune 500) all issued new debt securities.

All of these new bonds traded higher, said Peter Plaut, senior vice president at MF Global. Plaut says today's moves come after a slow period for new issuances.

With so much cash sitting on the sidelines in recent months, hedge funds and mutual funds are desperate to find somewhere to invest that can generate a relatively high return, said Leland Hart, the head of BlackRock's bank loan group.

Because of this, high-yield bonds and sovereign debt could continue to attract significant interest from buyers.

Traders said nearly all high-yield, or junk, bonds rallied Thursday. Junk bonds had taken a huge hit since early August.

Meanwhile, the euro moved higher too, gaining 2% against the dollar to $1.41.

"The euro has been one of the most shorted assets in the world," said David Renta, senior vice president of institutional foreign exchange at KeyBank in Ohio.

Commodities -- including oil, gold, silver and copper -- all rallied Thursday as well ... but for different reasons.

Investors purchased oil because the European debt deal offered hope that the global economy was less likely to collapse. By contrast, gold, which moved up $20.40 to $1743.90, was being touted again as a hedge against inflation.

As investors moved back into "risk on" mode, pries for the benchmark 10-year U.S. Treasury finally fell, causing yields to rise to 2.4%. That's up sharply from a record low of 1.67% a month ago. Treasuries are viewed as the penultimate safe haven. To top of page

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