Bonds: Italian yields creep up

Date: Wednesday 25 Jan 2012

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

Italy: 6.23% (+6bp)
Spain: 5.4% (-6bp)
France: 3.15% (-1bp)
Germany: 1.94% (-5bp)
UK: 2.16% (-2bp)
US: 1.97% (-10bp)

The yield on Italian debt crept up today as Greece and its private sector creditors failed to reach an agreement on a voluntary bond swap.

The significance of the deal is that it would give lenders to the debt stricken country certainty over their losses. It would also avoid the potential cataclysm of a so called “hard default” where Greece simply fails to pay any of its creditors any money at all.

Part of the problem appears to be that the European Central Bank has baulked at taking a haircut on the Greek assets it holds, putting the ball firmly back in the court of the private sector.

At the more orderly end of the bond market, Germany managed to sell 30 year bonds today at a yield of just 2.62%, which Bloomberg reported as a record low since data was collected in 1993. This may well be a reaction to concerns over Greece.

The UK’s GDP reduced by 0.2% in the final three months of 2011, leaving Britain on the edge of a second recession in as many years. The news did not, however, impact bond yields as investors currently find the UK’s fiscal consolidation plausible.

BS

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