Safer Spain
December 15, 2011
Judging by government bond auctions on Wednesday and Thursday, Spain appears to be a safer haven for investors than Italy.
Spain sold nearly twice as many bonds than planned at its final auction this year, and saw yields on its bonds fall to their lowest levels since October.
By comparison, Italy, another debt-riddled eurozone country, had to pay record-high euro borrowing rates to convince lenders to lend it 3 billion euros ($3.9 billion) over five years.
Rising investor concerns
Spanish and Italian bonds have both been supported through purchases by the European Central Bank. Since August, however, Italian yields have soared ahead of Spain's amid rising investor concerns about Italy's public debt.
On Wednesday, Italy paid an average yield of 6.47 percent. That is a fresh Italian record, up from 6.29 percent last month.
Italy has seen its refinancing costs soar to what most analysts view as unsustainable levels. And whether technocrat caretaker Mario Monti, who replaced former Prime Minister Silvio Berlusconi, succeeds in putting Italy back on track anytime soon remains to be seen.
The little bit of good news in the not-so-happy euro bloc was the unexpected strong demand for Spanish bonds. The government sold 6.02 billion euros against a target range of 2.5 billion euros.
What's more, it sold 2.18 billion euros of bonds due in 2016 at an average yield of 4.023 percent, compared with 5.276 percent for bonds of a similar maturity offered on December 1. The average yield on the April 2020 bonds was 5.201 percent, up from 5.006 percent at the previous sale on September 15.
Enthusiastic response
The enthusiastic response to the Spanish bond auction, however, doesn't alter the still challenging economic situation facing the new government. Spain continues to struggle with rampant unemployment, stuttering growth and an unhealthy domestic banking system.
In a move to bolster investor confidence in an economic bloc suffering from a two-year sovereign debt crisis, eurozone leaders recently agreed on tighter budget rules and added 200 billion euros to their bailout fund, in addition to plans to launch a 500 billion euro rescue fund next year.
Author: John Blau (Reuters, AFP)
Editor:Michael Lawton