CITI: Nothing's Stopping Spanish And Italian Yields From Going Higher This Week

Even with the announced Spanish bank bailout, government borrowing costs continue to surge in Europe’s most debt-laden countries like Italy and Spain. And according to Citi’s Developed Market Rates team led by Jamie Searle, there isn’t much preventing them from heading higher. From their note to clients this morning:

Yesterday’s bearish reversal in EMU spreads is, in our view, likely to be a sign of what is to come. The good news from the Spanish bank bailout over the weekend was probably already in the price. We expect periphery yields to move higher this week and the highs for 10yr Spanish yields to be tested sooner rather than later…Against this backdrop, it is perhaps unfortunate that this week happens to be a heavy one for euro government bond issuance (around €14.5bn). While much of this is in the core, Thursday’s BTP auction will certainly focus minds…Many question marks remain over the Spanish bank bail-out and it is unlikely to prove a game changer. Moreover, with issuance from Italy on Thursday and the Greek elections looming threateningly at the weekend, we see little to prevent periphery yields from retracing higher in the coming days. 

Here’s the Spanish 2-year yield today, via

Photo: Bloomberg

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