Saturday, July 10, 2010

Euro and European Bond Spreads

by Bill McBride on 7/10/2010 06:57:00 PM

Related to the earlier post on sovereign debt: Part 2. How Often Have Sovereign Countries Defaulted in the Past?

Here is a graph from the Atlanta Fed weekly Financial Highlights released today (graph as of July 7th):

Euro Bond Spreads Click on graph for larger image in new window.

From the Atlanta Fed:

Most peripheral European bond spreads (over German bonds) have narrowed or stabilized over the past two weeks, though they remain elevated.

After rising steadily through May and most of June, the 10-year Greece-to-German bond spread has narrowed 38 basis points (bps) (from 8.01% to 7.63%), through July 6. Most other European peripherals’ spreads have narrowed, too, with Portugal’s down 28 bps. However, Spain (up 18 bps) and Italy (8 bps higher) were the exceptions.
Note: The Atlanta Fed data is a few days old. Nemo has links to the current data on the sidebar of his site.

Here are the spread for the 10-year relative to the German bonds:
CountrySpreads July 7thSpreads June 16thSpreads June 2nd
Greece7.64%6.40%5.03%
Portugal2.75%2.74%1.95%
Ireland2.62%2.83%2.19%
Spain2.06%2.09%1.62%
Although off the recent peak, the Greek spreads have widened over the last month. For the other countries, the spreads have been mostly flat since mid-June.

Euro Dollar The second graphs shows the number of dollars per euro since Jan 1, 1999.

The euro has rebounded recently after dipping below 1.20 dollars per euro.

The dashed line is the current exchange rate. The euro is currently at 1.26 dollars.