Bloomberg News

Tremonti Says Spain’s Narrower Bond Spread May Reflect Vote

October 04, 2011

(Updates with Tremonti’s comments starting in second paragraph, yields in fourth and fifth.

Oct. 4 (Bloomberg) -- Italian Finance Minister Giulio Tremonti said the fact that Spanish bonds yield less than Italy’s debt over German bunds may reflect imminent elections in Spain.

“It may depend on the announcement of elections and the perspective of a new government,” Tremonti told reporters in Luxembourg today after a meeting of European Union finance ministers. “No, the government has done the right things at the right time,” he added when asked whether Italy also needs early elections.

Spanish Prime Minister Jose Luis Rodriguez Zapatero called elections for Nov. 20 in July as polls showed voters will ditch his Socialist party over its handling of the debt crisis in favor of opposition pledges of jobs and tax breaks. Italy last month approved a 54 billion-euro ($73 billion) austerity package aimed at balancing the budget in 2013.

The extra yield investors demand to hold Italian 10-year bonds indicate investors perceive the debt is riskier than that of Spain. The spread over similar-maturity Spanish bonds was almost 40 basis points today. In June, Spain’s 10-year bond yielded 80 basis points more than Italy’s.

The gap between the yield on Italian and German 10-year bonds rose 4 basis points to 377 basis points. The Spanish spread added 6 basis points to 337 basis points.

Deficit-cutting measures and bond purchases by the European Central Bank have failed to quell market concerns over Italy’s 1.9 trillion euros of debt, more than Greece, Spain, Portugal, Ireland combined.

Tremonti also said today that Italy has an “important” primary surplus and that it will be able to meet its deficit targets even with low or zero growth. On Sept. 22, the Finance Ministry cut its economic-growth forecast for this year to 0.7 percent and to 0.6 percent for 2012, from 1.1 percent and 1.3 percent respectively projected in April.

--Editors: Andrew Atkinson, Andrew Davis

To contact the reporter on this story: Lorenzo Totaro in Luxembourg or ltotaro@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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