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Tuesday, September 30, 2014  

Italian, Spanish bond yields hit record high
PARIS/ ZURICH The long-term cost of borrowing for Italy and Spain reached record high levels on Monday on concern that the euro zone debt crisis could spread to these two countries, traders said.

The price of debt bonds issued by Italy and Spain fell further, automatically pushing up the indicated yield, or rate, of the fixed interest attached to the instruments.

The rate on 10-year bonds issued by Italy rose to 5.451 per cent and on Spanish 10-year debt to 5.797 per cent.

These rates were at the highest levels since the creation of the euro zone.

Traders said that several factors were behind the rise in the yields, and particularly a meeting of leading figures in the EU on Monday to coordinate their positions on a second debt rescue for Greece.

Traders were concerned about signs that the debt pressures, which have hit Greece, Ireland and Portugal, could begin to affect Italy and Spain.

Analysts at BNP Paribas bank commented that “investors are giving priority to safe investments and are switching to high quality assets, leaving aside those considered risky.”

This trend had been accelerated by the latest weak data on employment in the US which had raised prospects that economic activity around the world might slow down.

Tension over the US sovereign debt market was also hanging heavily over the bond market.

Also on Monday, the Bank for International Settle-ments (BIS) said sovereign debt crises are expected to widen to more countries in coming years, and public debts are increasingly likely to be viewed as risky assets.

“Looking forward, sovereign risk concerns may affect a broad range of countries,” said the bank for central banks.

“In advanced economies, government debt levels are expected to rise over coming years, due to high fiscal deficits and rising pension and health care costs,” it added.

Emerging economies are not immune, as their vulnerability to external shocks and political instability could have occasional impact on their sovereign debt.

“Overall, risk premia on government debt will likely be higher and more volatile than in the past,” noted the BIS.

“In some countries, sovereign debt has already lost its risk-free status; in others, it may do so in the future,” it added.

In the US, meanwhile, President Barack Obama is to convene crisis talks on Monday in a bid to raise the $14.29 trillion US debt limit, so as to stave off a debt default.

Agence France-Presse
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