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Bonds: Italian and Spanish yields drop as hopes rise

Date: Friday 27 Jan 2012

Bonds: Italian and Spanish yields drop as hopes rise

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

Italy: 5.9% (-15bp)
Spain: 4.97% (-24bp)
France: 3.04% (-6bp)
Germany: 1.86% (-1bp)
UK: 2.07% (-2bp)
US: 1.94% (+1bp)

The main focus in debt markets has been the yields of Italy and Spain.

In Rome, the interest rate on 10 year bonds fell below 6% to hit 5.9% by the close, the lowest since the beginning of September.

The interest rate on Spanish 10 year bonds fell to 4.97%, the lowest since October.

These drops increase the sense that the Eurozone debt crisis may not spiral completely out of control. Augmenting this sense is the news that Greece may finally agree on a voluntary bond swap with its private sector lenders.

The EU’s economic and finance commissioner, Ollie Rehn, said a deal was “very close”.

The head of the International Monetary Fund, Christine Lagarde, was more forthright, describing previous offers from the creditors as “inappropriate” and demanding they take an even greater haircut than the 69% loss they have so far suggested.

Several sources have suggested a final deal between the Greek government and the Institute of International Finance (which represents the banks) could be sealed over the weekend. If so, it will be very interesting to watch yield pricing as markets kick back into action on Sunday night UK time.

BS

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