New year kicks off with lower borrowing rates

Borrowing rates for Spain and Italy dipped below 4.0 percent on Thursday in a comforting new year start for countries whose economies are still considered the eurozone's weakest links.

New year kicks off with lower borrowing rates
Photo: Javier Soriano/AFP

In early afternoon trading, 10-year Spanish bonds fell to 3.994 percent from 4.151 percent on Tuesday, dipping below the 4-percent mark for the first time since December 2012.

Italian 10-year debt meanwhile dipped to 3.984 percent from 4.125 percent, undershooting 4 percent for the first time since May 2012.

Investors bought up the sovereign debt of Spain and Italy after a key survey said business activity in the eurozone posted its strongest growth in 31 months in a fresh sign of recovery.

Across all the currency bloc, the latest data pointed to an increase in production of approximately one percent in the last 2013 quarter.

Thursday's bond yields are far lower than the borrowing rates of six percent and more reached at the worst of the eurozone debt crisis when investors feared an imminent break-up of the currency bloc.

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Spanish bond yields hit record low

The yield on Spanish, Italian and German 10-year government bonds fell to new record lows on Tuesday, the day after the ECB began a massive bond-buying programme to ward off deflation in the eurozone.

Spanish bond yields hit record low
The European Central Bank, in Frankfurt, launced a new quantitative easing programme on Monday. Photo: Daniel Roland/AFP.

The rate of return to investors on 10-year Spanish government bonds fell to 1.231 percent from 1.275 percent on Monday. 

The yield on 10-year Italian government bonds fell to 1.220 percent from 1.280 percent and those of Germany fell to 0.279 percent from 0.312. 

The European Central Bank launched on Monday a so-called quantitative easing (QE) programme that will see it buy €60 billion of eurozone government and corporate bonds through next September.

The ECB hopes that by buying bonds off investors they will invest the money elsewhere, thus boosting growth and preventing a dangerous cycle of falling prices from setting in.

Eurozone bond yields have been falling in recent weeks to record lows as investors anticipated the increased demand from ECB purchases.

The yield on French 10-year bonds was at 0.568 percent in morning trading, above the record low of 0.521 percent set in January.

Greek bonds are not benefitting from the decline in yields due to a new spike in concerns over its finances as well as Greek debt not being included in the QE programme.