Italian-German bond spread hits record

11th January 2011, Comments 0 comments

The gap between the risk premium on Italian 10-year bonds and safe-bet German bonds hit a record 204 basis points on Tuesday, reflecting investor unease over the finances of some eurozone states.

But Italy also managed to raise seven billion euros in one-year bonds without any problems ahead of a bigger debt test later this week.

Tuesday's risk premium rate of 2.067 percent was only slightly higher than the rate of 2.014 percent in the last similar operation in December.

The yield was, however, the highest in two years in comparable deals.

The offer on Tuesday was over-subscribed and the Bank of Italy said in a statement that the Treasury had received 11 billion euros in bids.

But the real test for Italy on the markets is due on Thursday when it wants to raise between four and six billion euros in five-year and 15-year bonds.

"Italy is still seen as one of the good debts in the periphery," said Cyril Regnat, a bond expert at French investment bank Natixis, referring to weaker eurozone economies including bailed-out Greece and Ireland.

"Its outlook is still relatively good," it said.

Italy's public deficit is lower than many other countries in the eurozone but its debt level is rising and is now close to 120 percent of gross domestic product (GDP) -- one of the highest in the world.

The yield on Italian 10-year bonds meanwhile rose to 4.907 percent on Tuesday compared to 4.846 percent on Monday, as debt rates for Portuguese and Spanish debt hit record levels.

© 2011 AFP

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