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Friday, December 31, 2010 4:14 AM

European Sovereign Debt Crisis in Pictures; PIIGS Spreads to Germany at or Near Record Levels

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The sovereign debt crisis in Europe is still simmering. Country by country, spreads to German debt are at or near record levels.

Chart follow snips from German Bonds Climb in 2010 as Fiscal Crisis Roils Euro Area

German bunds climbed this year, the best performance since 2008, as the fiscal crisis that roiled the euro area’s most-indebted nations drove investors to the safest fixed-income assets in the region.

Top-rated euro-denominated securities from Austria, Germany, the Netherlands, Finland and France led gains in 2010, while the debt of Greece and Ireland, which sought bailouts this year, had the biggest losses among 26 markets tracked by Bloomberg and the European Federation of Financial Analysts Societies.

German bonds returned a profit of almost 6 percent this year, according to the Bloomberg/EFFAS data, compared with a 20 percent loss on Greek debt, a 14 percent slump in Irish securities and an 8 percent decline for Portuguese securities. Spanish and Italian bonds also made a loss as investors demanded increasing yields to own the debt of the euro area’s high-deficit nations.

As borrowing costs climbed again amid a wave of sovereign downgrades that saw Greek debt cut to non-investment grade at Moody’s Investors Service and Standard & Poor’s, Ireland opted on Nov. 28 to follow Greece, accepting an 85 billion-euro bailout. That, too, failed to prevent the spread of the debt crisis, fueling investor concern that Europe’s stronger nations may be unwilling or unable to foot the cost of future rescues.

The extra yield investors demand to hold Greek 10-year government bonds instead of German bunds, Europe's benchmark government securities, surged to a euro-era record of 973 basis points on May 7, and was at 953 basis points today. It started the year at 239 basis points. The difference in yield, or spread, between German bonds and 10-year debt from Ireland, Portugal, Spain and Italy also reached euro-era records.
Germany, Ireland, Portugal, Greece Sovereign Debt Yields

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France, Spain, Belgium, Italy Sovereign Debt Yields

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Sovereign Debt Spread to Germany
Country Jan 01 May 07 Dec 30
Belgium 0.3% 0.7% 1.0%
France0.2% 0.4% 0.4%
Greece 2.4% 9.7% 9.5%
Ireland1.4% 3.1% 6.0%
Italy0.3% 1.5% 1.8%
Portugal0.7% 3.5% 3.6%
Spain0.6% 1.6% 2.5%

The bailouts to Greece and Ireland solved nothing. Spain and Portugal are up next. The country to keep an eye on is Italy. It is off nearly everyone's radar right now. Not mine. Italy is simply too big to bail and its spreads are creeping up.

Correction: Second chart as originally posted contained a line for Spain that was actually Portugal a second time. Now corrected.

Mike "Mish" Shedlock
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