Bloomberg News

Kraemer Says Italian Bond Spread Is Best Euro-Stress Indicator

February 28, 2012

Feb. 28 (Bloomberg) -- Moritz Kraemer, head of sovereign ratings at Standard & Poor’s, said the spread on Italian debt over German bonds may be the best indicator of stress in the euro-area debt market.

“If I had to take a single indicator, I would probably look at the 10-year Italian bond yield spread because it’s the biggest debtor in the euro zone,” Kraemer said at the Euromoney Bond Investors Congress in London today. “It’s still probably the one nation, the one sovereign, where the fate of the euro- zone crisis may turn for the better or worse. Italy is very important for the sheer size of its debt and its refinancing needs.”

Italy’s borrowing costs fell at a bond auction today that will help the nation cover 37 billion euros ($50 billion) in bonds maturing this week. The yield on the nation’s 10-year bond declined 5 basis points to 5.37 percent as of 10:56 a.m. in London, narrowing the difference with similar-maturity German debt to 354 basis points. That’s down from 501 basis points at the start of the year.

The Treasury in Rome sold 3.75 billion euros of a new 10- year bond to yield 5.5 percent, the lowest since September and down from 6.08 percent at the last auction of similar-maturity debt on Jan. 30. It also sold 2.5 billion euros of 2017 bonds to yield 4.19 percent, down from 5.39 percent at the last auction.

The auction came a day before the European Central Bank’s second round of three-year loans to the region’s banks under its long-term refinancing operation. The ECB’s move to shore up funding to lenders has left them more willing to buy European bonds, helping to push down yields.

“Market conditions are a factor to watch,” Kraemer said. “The LTRO is useful in that it opens windows for reforms, but it is not a solution. The fundamental adjustment takes time.”

--With assistance from Anchalee Worrachate in London. Editors: Fergal O’Brien, Jeffrey Donovan

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net


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