All-Time Lows

High Bond Demand Offset by Plunging Yields

spain
Spain's parliament is busy trying to fend off Catalan independence.
  • Why it matters

    Why it matters

    The European Central Bank’s bond-buying program is driving down yields across Europe.

  • Facts

    Facts

    • Yields on 10-year Spanish and Italian bonds have reached historic lows.
    • Analysts say the situation doesn’t adequately reflect the risks, however.
    • The ECB is operating a monthly €80-billion ($89-billion) bond-buying program.
  • Audio

    Audio

  • Pdf

Like the stock markets, the bond markets have also apparently forgotten about Brexit worries for the time being.

Concerns that followed the June 23 vote by the British to withdraw from the European Union  seem to have disappeared. On the contrary, bonds are in great demand once again, including those from the southern euro-zone countries.

In return for the resulting rise in prices, yields on 10-year Spanish and Italian bonds have reached historic lows. The yield on the 10-year Spanish government bond fell below the 1-percent mark on Tuesday, to 0.95 percent, while that of the comparable Italian government bond slipped to 1.07 percent.

This lack of concern among investors is also reflected in yield markups on German government bonds. After the Brexit vote, the risk premiums jumped to above 1.6 percent, the highest level since the fall of 2015. Meanwhile, risk premiums have fallen to only about 1 percent.

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