The interest of the Spanish 10-year bond exceeds 3% for the first time since 2014

MADRID, 14 Jun. (EUROPA PRESS) -

The return required in the secondary market for the Spanish bond with a ten-year maturity reached this Tuesday the threshold of 3% for the first time since May 2014 given the prospect of more intense interest rate rises in the United States and its possible effect on the monetary normalization announced by the European Central Bank (ECB).

In this way, the yield of the Spanish ten-year bond reached 3.056% this Tuesday, compared to 2.984% at the close of yesterday, surpassing the 3% barrier for the first time since May 2014.

The yield on the ten-year Spanish bond, which a year ago was 0.395% and which in December 2020 entered negative territory as a result of the ECB's intervention, has registered a strong increase since the end of last January before the shift in monetary policy by central banks in response to escalating inflation.

On its side, the German 'bund' offered a return of 1.686%, expanding the risk premium of the equivalent Spanish debt to 137 basis points, at a maximum since the spring of 2020.

The spread of the ten-year Spanish bond with respect to the equivalent German bond, which consolidated above 100 basis points since the beginning of May, has accelerated its increase in the last week from around 110 basis points before the meeting of the ECB last Thursday to around 130 basis points currently.

The announcement last Thursday by the ECB of the first rise in interest rates in eleven years in the region next July and another increase in September has intensified the pressure on the euro's peripheral debt as the completion of central bank asset purchase programs that had hitherto kept fragmentation at bay.

However, despite the fact that the president of the ECB, Christine Lagarde, insisted during the press conference that the entity "will not tolerate" a fragmentation of the euro zone debt market incompatible with the adequate transmission of the monetary policy of the institution, the lack of details on how the ECB will deal with this situation has fueled the divergence between the upward yields of eurozone bonds.

In this way, apart from the Spanish risk premium, the spread between the 'bund' and the ten-year Italian bond has been above 250 basis points, while in relation to Portugal the Portuguese risk premium is close to 140 basis points, when at the beginning of June the spread was around 200 and just over 110 basis points, respectively.

In her appearance before the press last Thursday, Christine Lagarde recalled that the ECB has instruments to combat fragmentation, such as the ability to reinvest debt acquired under the anti-pandemic program (PEPP), which will be implemented with total flexibility of time and jurisdictions.

"As we have already shown, we will deploy other existing instruments or those necessary to prevent fragmentation from impeding the proper transmission of monetary policy," he added, noting that there is no specific level of risk premiums or debt yields that could trigger the intervention of the central bank. "We will not tolerate a fragmentation that prevents the transmission of monetary policy," he concluded.

However, several analysts consulted by Europa Press indicated that same day that the lack of details in this regard could fuel tension in the following sessions.

"No details were given at the meeting and peripheral spreads widened accordingly," said Konstantin Veit, portfolio manager at Pimco, while Nicolas Forest, head of fixed income at Candriam, considered the end of quantitative easing (QE). as a clear threat to the financial stability of the euro zone, where the 'spread' of italy has widened significantly.

“Even if the markets are speculating on a spread control framework, no additional tool has yet been put forward. Therefore, the risk of market fragmentation is significant and there is no doubt that the ECB should provide details on a possible new tool in the coming months," he added.

Likewise, Pedro del Pozo, director of financial investments at Mutualidad de la Abogacía, considered Lagarde's explicit commitment against fragmentation "very important", but agreed that "the negative part is that it has not specified how".