Sunday, October 27, 2013

Debt: A deceptive calm

by Ralph Atkins

Financial Times

October 27, 2013

James Carville, an adviser to former US President Bill Clinton, wanted to be reincarnated as the bond market, complaining that it was more powerful than presidents or popes. “You can intimidate everybody,” he moaned.

He should have moved to Rome. This year, Italy has had an inconclusive election, a government often on the brink of collapse and an economy struggling to leave a deep recession. But the bond markets have been noticeably quiescent.

Rather than Rome’s borrowing costs rising as investors worried about the security of Italy’s public debt, the difference – or “spread” – between the yield on 10-year Italian and German government bonds has fallen to levels unseen since the eurozone crisis hit the country more than two years ago.

“I don’t recall [prime minister] Enrico Letta mentioning the word ‘spread’ in any of his official speeches,” says Alessandro Tentori, strategist at Citigroup in London.

It is a similar story in other stressed parts of Europe’s monetary union. Apart from a few weeks in May and June, when borrowing costs spiked globally, eurozone yields have followed a downward trend this year. Spain’s long-term borrowing costs are level pegging Italy’s; Irish government yields are even lower.


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