Bloomberg News

Technocrats Spur Italy Debt Rally Over Spain: Chart of the Day

February 13, 2012

(GRAPHIC: COD_ITALY_SPAIN_DEBT_021312. CHART OF THE DAY. Size: 3C X 3.75in. (146.0 mm X 95.25 mm) Expected by 15:00.)

Feb. 13 (Bloomberg) -- Italy’s technocratic government led by Prime Minister Mario Monti is generating more confidence in credit markets than Spain’s democratic administration as both nations struggle to overcome the debt crisis.

The CHART OF THE DAY shows the cost of insuring Italian bonds with credit-default swaps tumbled about 200 basis points since Monti took over from Silvio Berlusconi in November. Spanish swaps lagged behind, falling about 130 basis points after Prime Minister Mariano Rajoy won office the same month. Italian contracts now exceed Spain’s by 33 basis points, after being 141 basis points wider two months ago.

Monti has garnered praise from French President Nicolas Sarkozy for “spectacular progress” after pushing through spending cuts and tax increases to eliminate Italy’s budget deficit by 2013. Spain will struggle to reach this year’s deficit targets as Rajoy seeks to balance budget cuts as he faces regional elections.

“The new Italian government is showing firmness in reaching the target of zero budget deficit for 2013,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “We see more execution risk in Spain, which already failed in 2011 with its deficit target.”

The difference is also reflected in the nations’ borrowing costs, with Italy’s 10-year bond yield tumbling almost 2 percentage points since November to 5.6 percent, while Spain’s benchmark has dropped about 1.8 percentage points to 5.3 percent. Italian yields now exceeded Spain’s by 30 basis points, down from 202 basis points at the end of last year.

The market may be signaling a downgrade for Spain, which is rated one level above Italy by Moody’s Investors Service, according to Giansanti.

--with assistance from Keith Jenkins in London. Editors: Michael Shanahan, Paul Armstrong

-0- Feb/13/2012 19:19 GMT

To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net


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