Spain’s risk premium continues to narrow as fears abate

Despite the Spanish economy remaining mired in its second recession in four years and appallingly high unemployment, Spain’s sovereign debt market continued to improve on Friday with yields in the secondary market falling to levels not seen since November 2010 just shortly before the Irish bailout.

After the European Central Bank’s monthly monetary policy committee meeting on Thursday, ECB president Mario Draghi noted that confidence has been restored, with fears of the break-up of the single-currency bloc dissipating. With concerns subsiding, Spanish debt now offers investors attractive returns.

The stock market also enjoyed a good session after the release of the best US employment figures since December 2008. The blue-chip Ibex 35 index led the European bourse higher, closing up 2.85 percent at 8,628.10

The yield on the Spanish benchmark 10-year government bond eased to around 4.7 percent. As a result the spread with the German equivalent declined 16 basis points to 323 points. The risk premium narrowed 48 basis points in the week.

The Treasury on Thursday managed to sell 10-year bonds at below 5 percent for the first time since 2010, suggesting that the initial panic sparked by the indecisive Italian elections was ephemeral.