Are these 10-year EU sovereign debt yields sustainable?

Written by Posted On Friday, 11 April 2014 04:28

title insurance,closing costs,NYC,New York City,Long IslandFrom the Hallmark Abstract Service blog.

This chart shows the May 18, 2012 10-year sovereign debt yields for the United States, Japan, and the five EU PIIGS (Portugal, Ireland, Italy, Greece and Spain)!

Yield spreads between the countries were at these exaggerated levels (although improved for most from the depths of the global financial crisis) due to continued concerns over the ability of these weaker EU economies to manage deficits, access the credit markets, improve economic growth and of course stay solvent in the face of demands for austerity.

10-Year Sovereign Debt Yields as of May 18, 2012

10-Year Yields       Current     Last Week

At the same time the Portugal 10-year yield was north of 10% and in Ireland up at around 6%.

Those yields were then and here they are now!

Fast forward to today’s market and this is the current 10-year yield scenario for this sovereign debt:

United States   2.69%
Japan                     .62
Italy                      3.26
Spain                    3.21
Greece                 5.91
Portugal              3.91
Ireland                 2.95

Why the vast improvement in spreads to US government debt that in the case of Ireland is less than 30 basis points and, more importantly, is is sustainable?

Certainly the ability for these countries that have had limited to no access to the capital markets for years to now have that outlet for raising cash is a huge step forward.

But, as this tongue-in-cheek April 4, 2014 quote from the website Zero Hedge posits, are these yield improvements merely smoke and mirrors or sustainable?

‘It seems there is a lesson here for all… push your unemployment rate to record highs, loan delinquencies to record highs, and depress your people to record high suicide rates… and voila… low cost of funding is guaranteed (surely there is a recipe here for Ukraine or Turkey or…)

Oh, and you absolutely must have a central banker with a ‘promise pony’.

As we anxiously await the outcome of AQR (Europe’s Stress Test) we can only imagine the bloated balance sheets of European banks stuffed with the domestic bonds that the crisis has now created and made the entire banking-system-sovereign-stress relationship inseparable.’

And this April 9 analysis from Barron’s.

‘In financial markets, the names Italy, Greece and Spain still conjure knee-jerk images of highly troubled peripheral euro-zone economies that only recently teetered on the brink of default. After all, they represented the letters I, G and S of the PIIGS acronym (joined by Portugal and Ireland) that for years became easy market shorthand for troubled European sovereign debt.

How quickly things change – at least with the help of the bottomless benevolence of central banks. Today’s Wall Street Journal highlights how surging investor demand has pushed Spanish and Italian 10-year bond yields (each now around 3.2%) within just half a percentage point of comparable Treasury bond yields. And the yield on 10-year Greek government bonds dipped to 5.921% today, per Tradeweb data, its lowest since December 2009. This for a country with a credit rating that’s still deep in junk territory.’

Of course we will only know the answer to the question of price and yield level sustainability as time moves forward because, as with all things investing, only time will tell and past performance (and prior government action) is certainly no guarantee of future results!


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Michael Haltman

Hallmark Abstract Service provides title insurance for both residential and commercial real estate transactions in New York State.

Hallmark Abstract President Michael Haltman is also extremely involved with the combat veterans 501(c)(3) Heroes To Heroes Foundation, serving as the Board Chair.

Hallmark Abstract Service

In 2008 we opened our doors focused on two primary goals:

Number one was to be a title insurance company that would provide clients with a superior finished product that completely protects their interests for what will likely be one of the largest transactions of their lifetime.

Number two was to insure that the experience of working with Hallmark Abstract Service was as easy and seamless as possible for all parties involved in the transaction!

From the number of satisfied clients who come back to Hallmark Abstract Service time after time for their title insurance needs, the evidence bears out that we have accomplished these two goals in the past and will maintain our client centric focus far into the future!

Michael Haltman

Post 1984 MBA in Finance from the State University of New York at Albany that concentrated on the tax-exempt market, Michael became a municipal bond analyst at Shearson/Lehman Brothers tasked with following general obligation issuers on the city and state level as well as housing bonds secured by mortgage pools.

This experience at Shearson/Lehman Brothers followed by stints at PaineWebber and Citigroup provided a broad framework and understanding of the real estate and mortgage markets.

As CEO of Exeter Commercial which underwrote and funded commercial mortgage loans as a correspondent lender, title insurance played a critical role in both the underwriting and closing process.

In 2008 recognizing both an opportunity and need, Hallmark Abstract Service was born.

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