Four days. This is the rest period that Spanish ten-year bonds have enjoyed. The period ended yesterday considering that yields, which rise when prices fall, returned to levels above the 5% psychological barrier to settle at 5.14%, a level not seen since January 20. The Spanish risk premium (as compared to the German bund) rose to 337 basis points. But the bad news does not stop there. There is another lesson to learn from yesterday's spike in Spanish treasuries: investors are once again differentiating between Spain and Italy. This time it is Spain who is worse off considering that even though the spike of its bond yields was accompanied by something similar in Italian treasuries, which are getting around 5.07%. But why do investors think Spain is riskier than Italy?
One of the main reasons for the discrepancy is that Spanish Prime Minister Mariano Rajoy told the EU on Friday that he would not comply with the EU?s demand to trim Spain's deficit ratio to 4.4% in 2012, but would only cut it to 5.8%.
Rajoy's snub, even if the Financial Times applauded it as a "display of courage" and the The Telegraph even compared Rajoy to El Cid, both investors and European leaders are not happy.
In fact, the yield on Spanish treasuries has done nothing but rise since Friday and has moved from 4.90% to settle at 5.14%. Worse off is Spain's near-term debt. Yields on two-year notes have gone from 2.24% to 2.44% compared to 1.74% paid on Italian notes of the same term.
