Spanish and German government bonds are signaling the respite in the euro-region’s debt crisis created by the European Central Bank’s unlimited three-year loans is coming to an end.
Two weeks after Italian Prime Minister Mario Monti said the “flames of crisis” are unlikely to return, German bund yields have fallen to records and Spanish borrowing costs have surged to the highest since the ECB started its longer-term refinancing operations in December. Spanish 10-year yields rose above 6 percent this week, getting closer to the 7 percent level that triggered the bailouts of Greece, Ireland and Portugal, as Prime Minister Mariano Rajoy said the country’s future is on the line.
“The LTRO momentum is increasingly fading,” said Michael Leister, a fixed-income strategist at DZ Bank AG in Frankfurt. “Spreads over bunds are widening and peripheral curves bear flattening. The speed of the decline hasn’t surprised me, but rather that the market had been so complacent before.”