David Prosser: Are the banks dumping sovereign debt en masse?

Outlook Still on the eurozone, why did bond yields spike upwards so sharply once again yesterday? At first sight, there was no reason for investors to mark up the risk of Italy, Spain and other eurozone members.

The answer may lie in the straightforward matter of supply and demand. We know from the trading updates published by Europe's banks in recent weeks that they have been selling eurozone debt (and that many would have sold more had they not been lent upon by their governments not to do so). We also know that the European Central Bank has been buying less debt than people expected – it said on Monday, for instance, that it bought less than half the debt last week than the markets had assumed.

We have, in other words, a glut of supply for sovereign debt and less demand. That gives the ECB a real headache. Does it step up its purchases of bonds in order to prevent yields – and thus market anxiety – rising further? Or does it keep some of its powder dry, given that it currently refuses to countenance any suggestion its purchases will not be finite. These are unpleasant choices for Mario Draghi, newly installed in the President's office, to have to make.