Yesterday's issue of Treasury bonds shows that investors are convinced that Spain will end up asking the EU for a bailout. The high demand (3.6 billion in bids) and the lowest interest rates since May -- from 2.434 to 0.946 for 3-month notes and from 3.691 to 2.026 for 6-month notes.
Despite dropping rates, Spanish bonds are still attractive compared to France and Germany's negative interest rates. This trend will continue because near-term debt carries less risk and because the bailout will cause Spanish yields to fall even more. This good news has diverted attention from the recession growing deeper and Catalonia's request for funding, both of which have pushed the risk premium upward.
