Spanish Bond Yields Lower than US

The Spanish yield, in particular, is surprising. Less than two years ago, Spain was at the epicenter of the euro zone’s economic fears as the government was forced into taking a multibillion loan from its fellow euro members, so it could afford to prop up its banks. Now its 10-year bond yield, at 2.466 percent, is less than the 2.477 percent seen on U.S. Treasurys—conventionally viewed as the safest of all asset classes.
Bond yields for other riskier “peripheral” euro zone countries are also near lowest-ever levels. Italian 10-year debt continued declining on Tuesday, to yield only 2.639 percent. Irish bond yields also fell; Greek yields were marginally higher, after dropping over 14 basis points to end at 5.826 percent on Monday.

Although concerns remain about the euro zone as a whole—unemployment is stubbornly high and inflation is worryingly low—the bond rally may in part reflects signs of economic recovery in some of the zone’s weakest members. For instance, Spanish Deputy Economy Minister Fernando Jimenez Latorre said on Monday that Spain could raise its growth forecast come September.

“The decline in Spain’s 10-year yield reflects not only the fall of the inflation premium, but the risk premium in general,” said analysts at BBH led by Marc Chandler in a research note on Tuesday.
“This risk premium included a risk that the euro zone would break up (redenomination risk) and that Spain would default. The risks have also fallen, though they are more difficult to measure.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza