The improved sentiment in financial markets since the European Central Bank’s three-year long-term refinancing operation (LTRO) in December had persisted. Many UK and euro-area banks had issued term debt, including unsecured debt. Spreads on senior unsecured bank debt had been lower than in the second half of 2011, but remained elevated compared to 2010 and the first half of 2011. Short-term bank funding markets had also improved; the cost of borrowing dollars against euros in forward foreign exchange markets had fallen sharply. 3 The spreads between Spanish and Italian government bond yields and those on German ... (full story)