Freitag, 27. Februar 2009

Spanish government bonds

Just like many other people, I'm wondering how best to invest my money in fixed-income considering the low level of interest-rates along the whole yield-curve.

One thing I find rather hard to understand is the divergence between government bond yields of various Eurozone countries. I can understand that people are worried about tiny Ireland being overwhelmed by its various commitments. I can also understand that people are reticent about handing their money to high-debt Italy and Greece. But how come Spain has to pay such a huge spread compared to German bunds?

Sure, Spain is in trouble. Everyone's indebted, the real estate market is just as bad as in the US, and both current account and the government's budget are deeply in the red. But then, so is Germany: Exports are dropping like never before, and Germany's core industries are producing lots of stuff that nobody wants right now. At least Spain has sunshine, reasonably priced hotels, reasonably good governance (including a banking supervisor who has helped Spanish banks to be in much better shape than German ones), and a not exactly high level of government debt.

So why is there a 100-130 bp spread compared to Bunds? Does anybody really believe that the default risk of Spanish government bonds is so much higher than German Bunds? I don't get it.

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