In another sign that the sovereign debt crisis in Europe has lessened for the time being, Italy’s borrowing costs have fallen. Portugal found the same reaction as it issued six month notes. Debt auctions by the financially weakest nations in the EU have gone well for several weeks. One reason is that the ECB has loaned banks hundreds of millions of dollars. Some of this has been used to buy sovereign paper, driving down yields.
It is not likely that the lower interest rates are due to optimism about the region’s financials. Spain missed it deficit to GDP targets as the figure hit 8.5% last year. Unemployment is worse than its was in the nation a year ago and has risen to over 20%. Portugal may not need a bailout for now, but its unemployment is 14% and its is in the midst of another recession.
Italy’s 10-year borrowing costs fell to their lowest level since August at a bond sale on Tuesday as large reinvestment flows and the prospect of more cheap European Central Bank liquidity helped Rome sell the top planned amount of bonds.
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