Bonds: Spanish 10 year yield overtakes Italian debt

Date: Friday 18 Nov 2011

As ever these days the bond market is focused on the distressed southern European states. At 4.45pm the yield on 10 year Italian bonds had dropped 20 basis points to 6.64%.

Equivalent Spanish 10 year debt was yielding 6.732%, up 25 basis points and overtaking Italy’s interest rate. This is a major concern for Euro area politicians wondering how, on earth, they would bail out a major European country which found itself unable to finance its debts.

Spain is now directly in the spotlight.

There are various reports that the European Central Bank intervened in the market to buy debt notes from both Spain and Italy although clearly with more impact on the latter.

The subject of the extent to which the ECB can buy bonds was raised by the respected German newspaper Frankfurter Allgemeine Zeitung which reported the ECB would limit its bond purchases to €20bn per week.

Meanwhile the new president of the ECB, Mario Draghi expressed his frustration that the members of the eurozone have taken so long to implement budget cuts agreed on over 18 months ago. He also made clear the ECB would not be printing money as a solution to the debt crisis, maintaining the only way the bank can maintain credibility is to do its job and keep inflation down.

On other markets, US 10 year treasuries dropped slightly pushing the yield up. At 5.07pm the yield had climbed 4 basis points to 2%.

At 5.08pm UK 10 year gilts were up 2.4bpts yielding 2.25% and German 10 year debt notes had climbed 7.4bpts to 1.97%

French 10 year bonds fell nearly 17 basis points to 3.468% on the day narrowing the spread over German equivalents to around 150 basis points. In these straitened times, that is quite good news.

BS

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