Bonds: Spain on the brink

Date: Thursday 17 May 2012

These were the yields and movements on some of the most watched 10 year bonds by the close in Europe:

Spain: 6.32% (+3bp)
Italy: 5.83% (flat)
France: 2.87% (-2bp)
Germany: 1.43% (-4bp)
UK: 1.85% (-2bp)
US: 1.74% (-2bp)

bp = basis point or 0.01 percentage points

Demand for the ultra safe debt of Germany reduced yields on 10 year bunds to the lowest on record.

The reason? Well you may have heard a small country in southern Europe is having a little local difficulty paying its debts. In fact, at the current rate of progress, the country that “lit the flame of civilization” could well end up extinguishing it.

The lack of a clear result in Greek elections at the beginning of May appears to have given the upper hand to left-wing parties opposed to the terms of the €240bn bailout provided by the IMF and Eurozone.

New elections in June could very well spell the end of the euro currency area in its current configuration.

And while we’re contemplating the cradle of western culture, it’s interesting to note one of the biggest “victims by proxy” of Greece’s pain was one of the main provinces of the empire which usurped Greece as the dominant force in the Mediterranean

The Roman province of Hispania (Spain) tried to flog some bonds today, just 24 hours after its Prime Minister, Mariano Rajoy, said his country faced being shut out of debt markets on fears over its acute budget deficit.

Today Spain sold nearly €2.5bn in debt, including some of a near three-year maturity. The average yield was 4.876% versus 4.037% at a similar auction two weeks ago.

Spain is currently paying 4.89% more to borrow money for 10 years than Germany, very near the all time high of 5.05% seen yesterday. This cannot carry on, something must give.

BS

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