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May 04, 2012 at 04:42 PM
Throughout Europe’s sovereign debt crisis, Greece has garnered most of the headlines. But now, the big two – Spain and Italy – are in the news and it’s not good.
The European Central Bank (ECB) has spent $1.31 trillion dollars trying to keep bond yields in the over-indebted countries like Spain and Italy from skyrocketing. But as of late, borrowing costs have been marching higher.
Spanish 10-year government yields have risen above 6% for the fourth time in the last year.
Short-term borrowing costs for Italy rose at government bond auctions in mid-April. Yields on 2.5 notes maturing in March 2015 jumped to 3.89% from 2.76% at the previous March 14 auction.
Spanish and Italian banks armed with money from the ECB have been snapping up the bulk of newly issued government debt along with other government bonds being sold by foreigners. This strategy has been referred to as the “Sarkozy carry trade” – named after France’s President Nicolas Sarkozy.
