Spanish Bond Yields

Since so much of the future of the world at the moment seems to be based on whether Spain is going to take a bailout from the ECB, I thought I would scout around and find what rind of rates their bonds are currently paying and hence how close to the edge they are. The results might surprise you. From some viewpoints, it seems quite possible that Spain could hang in there much longer than Greece.

Ok, lets start with the One Year Yield. Usually, when countries are in crisis, debt starts to pile up at the short end of the spectrum. because people do not trust that the country will pay the money back, but either bond buying by the ECB or a perception by bankers that Spanish collapse cannot come that soon, means that their 1 Year Bonds are trading quite low.

As you can see, the short term yield spiked twice in July, signifying genuine trouble, however, at the moment, the yield is only 3.2%, well within their range to pay.

Here is the yield on the 5 year bond. As you can see, it follows a similar pattern to the one year, with yields spiking at the end of June. However, they started declining even before the ECB made the promise to buy their bonds (unless of course there has been an 'understanding' that the ECB has been buying Spanish bonds on the quiet, which would nou surprise me at all.

Now this is the 10 Year Bond. If the country is in serious trouble, here is where you would expect to see it, since no one in their right mind is going to lend to a country for 10 years if they are on the brink of collapse, unless they are backed by the ECB that is. Note the massive drop on 8 September when the ECB announced it's bailout plan, effectively guaranteeing Spain's bonds as long as they ask for a bailout. Even though yields have risen a bit ince then, it's obvious that most people still think that Spain will take the bailout. 

Here's the 20 year Bond Yield, which looks identical to the 10 year, except that the rate is higher, because what hold true for lending a country money for 10 years holds double for 20. Even after the OMT was announced, the yield only dropped to just under 6.4% and could spike back up pasy 7% very easily.

Finally, the 30 Year Note, which is a much wider graph, but you can still see the drop at the start of September and the moving around since. What's interesting is at the moment, it seems to be at the exact same point it was just after the bailout was announced. I presume people are optimistic that the meetings between Spain and the ECB will come in out in a result positive for them (the bond holders)

So what's the conclusion? Well i'm not really sure, you're guess is as good as mine, but I can make a couple of observations. Since the bailout was announced, the world seems to have bought the idea that Spain is financially stable, even after the massive rate cut today. As I said before, it may be that they are waiting for the results of the ECB meetings to make their decisions. Of course, the other problem is that unless their bond yields go over 7%, Spain might not want to ask for a bailout and give up so miuch of it's fiscal sovereignty, something I could understand. I guess only time will tell.

Christopher Carrion.