Europe is in a gigantic economic and political mess.
But one area where it’s not a mess (at the moment) is at the sovereign debt front.
Borrowing costs for peripheral nations continue to drop nicely.
Italy auctioned €3 billion ($3.91 billion) of five-year bonds and €3 billion of 10-year bonds. The yield on the five-year debt was 2.84%, down from 3.65% at the last debt auction on March 27, while the 10-year yield was 3.94%, down from 4.66%. The yields mark the lowest funding costs Italy has achieved at a debt auction since October 2010.
There are two things going on.
One is Italy-specific, and that’s that the country has finally selected a new Prime Minister (Enrico Letta) establishing some stability after its election in February.
And the other news is that thanks to the ECB, Japan, and the hunt for yield, investors are snapping up government debt, optimistic that there will be a central bank backstop.
Everything’s still miserable, but at least people aren’t betting that governments are about to go bankrupt.