The European Central Bank’s plan to buy bonds is proving more successful at keeping borrowing costs for France and Belgium near record lows than persuading investors to lend to Spain and Italy for less.
Spain’s three-year yield is back up to 3.83 percent after dipping to 3.37 percent on Sept. 7, the day after ECB President Mario Draghi detailed his proposal to buy unlimited debt for countries that agree to economic conditions in return for help. Since then, investors have lost 0.1 percent on Spanish debt repayable in three year or less, and made 0.1 percent on Belgian notes with similar maturities. The cost of insuring French debt against default has declined 24 percent, almost twice the 13 percent drop in Italian default-swap costs.
“There is a decent chance that even if Spain agrees to a program, there will be periods and reviews that it doesn’t meet its conditions,” said Nick Eisinger, a sovereign analyst with Fidelity Investment in London, which oversees $1.6 trillion. “If that happens, the market will start speculating as to whether the ECB will stop bond purchasing. There are still enormous macro challenges in Europe and the growth outlook continues to deteriorate.”