News Column

Borrowing Costs Fall in Spain, Italy and Portugal

Nov. 29, 2012
euro coins and bills

Borrowing costs in troubled eurozone countries Italy, Spain and Portugal fell on Thursday, on the back of market optimism fueled by the deal eurozone members struck this week to continue bailout aid for Greece.

Italy sold 3 billion euros' (3.9 billion dollars') worth of 10-year bonds at a yield of 4.45 per cent, down from 4.92 per cent at a previous bond auction in late October. It was the lowest yield level since late 2010.

The yield difference, or spread, between Italian and German 10-year bonds - a key risk indicator - fell below 3.1 percentage points in morning trading, an eight-month low. It later edged up slightly to 3.14 percentage points.

A year ago, when a worsening debt crisis forced former prime minister Silvio Berlusconi to step down in favour of Mario Monti, a non-partisan economist, the Italy-Germany spread was around 5 percentage points, a level seen as unsustainable.

In another positive development for Italy, a closely-followed industrial confidence index rose to 88.5 in November from 87.8 in October, national statistics office Istat said. Analysts had predicted an increase to 88.

In Spain, another vulnerable eurozone member, the yield on 10-year bonds fell below 5.3 per cent. That left the spread with German bonds hovering around 3.9 percentage points, another eight-month low.

In Portugal, two-year bonds had a yield of 3.8 per cent, the lowest since November 2010. Yields plunged below 7.6 per cent on 10-year bonds and to around 6 per cent on five-year bonds, down from 17 and 22 per cent respectively 10 months ago.

Markets have rewarded the austerity policies of Prime Minister Pedro Passos Coelho, who is following the guidelines of the European Union and the International Monetary Fund.

The two institutions granted Portugal bailout funding worth 78 billion euros (100 billion dollars) in 2011.

Wednesday's approval by the European Union of Spanish banks' restructuring plans, a positive report on Madrid by the International Monetary Fund, as well as optimism about a deal in the United States to avoid the so-called fiscal cliff contributed to boost market confidence, analysts said.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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