The Spanish risk premium started 2014 at a good level, dropping beneath 200 basis points to 193 for the first time since April 2011. This is a long ways off from the scary 638 basis points from July 2012. We should remember that this rebound put Spain in a tough spot, and the markets thought that Spain's only option was to ask for a bailout or drop the euro.
Today that sounds like a nightmare. As an economic indicator, the risk premium signals a hopeful future for the Treasury, banks and companies. At this level, these organizations can finance their operations at a much lower interest rate. We should expect to see more cuts, but stay wary. If Montoro can maintain spending cuts, then the deficit will not crawl back up.
