Upbeat investors drive down Euro bond yields

Tim Wallace
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BORROWING costs hit new lows in Spain yesterday as investors regained faith in the economy’s stability.

Troubled countries across the Eurozone’s periphery have all seen surges in investment flows drive down their borrowing costs, with Italy, Ireland and even Greece seeing bond yields plunge.

Spanish 10-year borrowing costs fell to 3.69 per cent yesterday, their lowest level since before the financial crisis.

The costs had peaked at more than 7.5 per cent at the height of the sovereign debt crisis in mid-2012, raising fears the government would be unable to fund its borrowing and require a bailout. But the current borrowing figures indicate the government has successfully clawed its way back from the precipice.

Italy’s last night stood at 3.8 per cent, the lowest rate since May 2013, down from highs of more than seven per cent. And Portugal’s are down at 5.1 per cent, from 7.4 just months ago.

The Irish government recently exited the bailout programme and its debt was given an investment-grade rating by agency Moody’s.

That seal of approval helped drive its 10-year bond yields to 3.19 per cent.

“The upgrade is a boost for the Irish government. It opens up Irish debt to a broader range of investors once again and is likely to spur increased demand, particularly from certain regions, such as Asia,” said analyst Colin Bermingham from BNP Paribas.

Even Greece has seen borrowing costs plunge. At its worst in early 2012, 10-year bond yields climbed to more than 36 per cent. Investors there did have to take a haircut, but yields have once again gradually fallen back, yesterday closing at 7.97 per cent.

However, the return of investors has not yet translated into strong growth across the economies.

“Europe is facing an often cited ‘lost generation’, a substantial share of which is either unsuccessfully looking for a job or remaining in education or professional training longer than individually preferred and economically rational,” said Deutsche Bank’s Stefan Vetter, noting youth unemployment is above 50 per cent in Greece and Spain.