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Bonds: Italy risks down, Spain fears grow

Date: Wednesday 16 Nov 2011

Bonds: Italy risks down, Spain fears grow

Want to find out how close the world is to financial cataclysm? The best place to start are the yields on the debt issued by Eurozone countries. Today’s figures suggest fears over Italy have, very slightly, receded but concerns over Spain and France are growing.

At 1630 GMT Italy 10 year bonds were yielding 7.003%, down 0.065 from the start of the day but still worryingly above the 7% threshold which forced Portugal, Ireland and Greece to seek bail-outs.

Today Mario Monti, the former EU commissioner and a respected economist, was sworn in as Italian Prime Minister and it appears that he will also take on the role of finance minister in the new government to give markets reassurance that painful budget cuts will be made.

In Madrid at 1633 GMT Spanish 10 year bonds were yielding 6.412%, up 0.076 on the day. The Telegraph has reported rumours that LCH.Clearnet, one of the world’s main clearing houses, may be about to raise margin requirements on Spanish bonds, making them more expensive and so less attractive to investors.

At 1645GMT French 10 year bonds had risen 22 basis points to 3.705%. The prospect of France not being able to pay its debts is too awful for most people to contemplate but, as its yields edge ever upward, that possibility grows.

The Governor of the Bank of England Mervyn King perhaps gave a sense of the alarm in financial circles about this possibility commenting today that: “there is no meaningful way to quantify the most extreme outcomes associated with developments in the euro area”.

While yields in the so called “troubled” nations are rising, the one country not having to pay much to borrow money is Germany, today its 10 year debt notes were trading at 1.81%, less than half of France's interest rate.

In the US the consumer prices index (CPI) measure of inflation dropped 0.1% in October, while the industrial sector increased production by 0.7% according to the Federal Reserve. Amidst the gloom from Europe these numbers will come as some relief both to investors and to the Obama administration, desperate as it is to get the economy moving again. The yield on US 10 year treasuries fell 3.7 basis points to 2.01% on the news.

In London, UK debt rose very slightly on worsening employment data which showed the jobless total at 2.62m people, a rise of 129,000 in the last 3 months. At 1728 GMT 10 year notes were yielding 2.16%.

BS

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