SPANISH BONUS 10 YEARS | Spain’s risk premium falls to lowest level since 2022

risk premium from Spain (difference in yield between Spanish 10 year bond and German bond as it is considered the safest) fell this Friday below 70 basis points.. This is the lowest level recorded since January 2022. The cut comes a day after the European Central Bank’s (ECB) Governing Council decided to cut interest rates by 25 basis points in its third cut in a year and second in a year. row.

The yield on 10-year Spanish bonds is 2.88%. in the secondary market compared to 2.183% in the German market. This puts the risk premium at 69 basis points, well below 118 basis points in Italy and 73 basis points in France. For the first time since 2008, the start of the great financial crisis, Spanish 10-year bonds were trading at a lower price than French bonds at the end of September this year. In particular, the interest rate on long-term Spanish debt was 2.94%, while on its French counterpart it was 2.947%. Thus, the risk premium for ten-year Spanish bonds was tentatively placed this Thursday at 79.4 basis points, and the French one was 0.7 points higher.

Restrictive monetary policy

The decline in the risk premium is a consequence of recent decisions regarding monetary policy in the euro area. The ECB met market expectations this Thursday, confirm the reduction of interest rates to the range of 3.25%-2.5% Main type of deposits. Analysts believe that given the weakness of the European economy, the central bank will embark on fresh rate cuts starting in December as monetary policy continues to follow a decidedly contractionary path.

The institution’s president, Christine Lagarde, justified her decision this Thursday with the latest economic data from the eurozone. In particular, inflation was lower than expected, increasing the ECB’s “confidence” that it will fall to its sustainable 2% target over the medium term, but it also highlighted that economic activity was also “weaker than expected.” the central bank. Although the ECB continues discarding that the monetary union will come into force recession Given the information you have right now, this lower growth accelerates the disinflation process, giving you opportunity to reduce rates faster than originally planned.

“As of December, we think the E.C.B. will tend to lower rates at each meetingit will therefore reach our forecast of 2.25% at the end of 2025 earlier, with the risk of an even deeper contraction,” explains Martin Wolburg, senior economist at Generali AM. AXA economists think the same as IM, Hugo Le Damany and Francois Cabot, who expect a quarter-point cut at each meeting until June 2025. “An inflation shock caused by tensions in the Middle East could prompt the ECB to act more cautiously,” he explains.