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Amidst the unrelenting and understandable focus on the continuing drama in Greece, it is important to recognise the credit which governments elsewhere in southern Europe are gaining from bond investors. In Italy, the 10yr yield is down another 9bp today at 5.52%, down 200bp since mid November. The Spanish 10yr yield has fallen a further 6bp to 5.25%, a decline of 150bp since mid November. Portugal has been the most impressive, its 10yr yield declining another 30bp today to 12.2% - in the past ten days the yield has collapsed by 600bp. The fall in the Portuguese 5yr yield has been even more telling, a decline of 850bp since early this month.
It remains to be seen if these recent moves are sustainable. Notwithstanding the very determined and creditable policy responses from the respective governments in these countries and their valiant efforts to comply with the demands of their major creditors, it still appears likely that at least one if not two of these sovereigns will need a significant debt restructuring at some point.
