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Bonds: Italy back in the red zone, Spain sweats

Date: Tuesday 15 Nov 2011

Bonds: Italy back in the red zone, Spain sweats

Southern Europe’s debt agony intensified on Tuesday as the two stricken giants of the Eurozone, Spain and Italy, saw their bond yields head north.

At 1615 GMT Italian 10 year bonds were yielding 7.05%, above the critical 7% threshold which saw Ireland, Portugal and, of course, Greece ask for a bailout.

Spainish 10 year debt hit 6.341% this afternoon, edging ever closer to the 7% death point, but pulled back later in the day to 6.336%.

The driver for the increase in Italian yields is not difficult to see, the new Prime Minister Mario Monti is struggling to appoint a cross party cabinet as politicians appeared unwilling to put themselves in the firing line by enacting unpopular cuts. Without political backing Monti’s “technocratic” government risks becoming a lame duck.

In Madrid a short term debt action for 12 and 18 month bonds saw the Government sell €3.158bn in debt although it failed to meet its stated target of €3.5bn. The 12 month debt came in at 5.2%, the 18 month came in at 5.32%. These numbers were approximately 150 basis points worse than the equivalent auctions in October, giving some sense of how the sovereign debt market has worsened.

The bid-to-cover ratios were at 2.1 (for 12 month) and 6.0 (for 18 month).

The perception that the Eurozone crisis could deepen further was heightened by comments from the Dutch Prime Minister Mark Rutte suggesting countries which violate debt rules could be “pushed out of the Eurozone”.

Elsewhere, the yield on 10 year US Treasuries fell 0.049% to 2%. German 10 year Bunds fell very slightly to 1.77% while in London UK 10 year debt was down 0.033% to 2.15%.

BS

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