European Bond Bubble Continues As Yield Drop

Ireland’s cost of borrowing hit a new record-low on Tuesday, as investors mulled whether bonds from peripheral euro zone countries were overpriced.

Euro zone government bond yields have been on a broadly downward slide since European Central Bank (ECB) President Mario Draghi pledged to do “whatever it takes” to save the euro from collapse back in 2012.

This June, borrowing costs—particularly for the less-robust “peripheral countries”—took a further tumble after Draghi announced multiple measures to boost the region’s growth prospects, including introducing negative rates on the ECB deposit facility.
Spain and Italy now have 10-year yields close to those of the U.S.—even though the latter’s economic recovery seems stronger on many metrics. Spanish and Italian debt yielded 2.44 percent and 2.61 percent respectively on Tuesday, while the yield on 10-year U.S. Treasurys was at 2.39 percent.
Less than four years after Ireland’s financial bailout, the country’s 10-year debt now yields less than its U.S. equivalent, hitting a new low of 1.93 percent on Tuesday after Moody’s Investors Service upgraded Ireland’s credit rating to “A minus”.

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