Bloomberg News

Spain Leaving Italy in Crisis as Yields Drop: Chart of the Day

September 28, 2011

Sept. 29 (Bloomberg) -- The bond market is favoring Spain over Italy by the most in more than two and a half years as investors bet the Iberian nation’s lower debt level means it is more likely to avoid a bailout than its euro-region peer.

The CHART OF THE DAY shows the extra yield investors receive for holding Italian 10-year bonds instead of similar- maturity Spanish securities widened to 56 basis points yesterday, the most since January 2009. That compares with an average 49 basis points premium for Spanish bonds in the first six months of the year. Italy’s government predicts its debt will be 121 percent of its gross domestic product this year, while Spain’s government says its will be 67.3 percent.

“Everyone knows that Spain has problems and that was the focus six-to-12 months ago,” said Michael Leister, a fixed- income strategist at WestLB AG in London. “Now they seem manageable. The focus has shifted to a medium-term assessment of the sustainability of the debt and Italy has a much larger debt- to-GDP ratio than Spain, so any rise in funding costs hurts them more.”

The European Central Bank began buying bonds from both countries on Aug. 8, according to people familiar with the transactions, after debt-crisis contagion sent borrowing costs up to euro-era records. While the purchases brought both nations’ 10-year bond yields down to about 5 percent in the week ending Aug. 12, Italy’s have since advanced, reaching 5.64 percent yesterday. Spain’s were about 5.08 percent.

--Editors: Matthew Brown, Nicholas Reynolds

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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