The fair value for Italian and Spanish spreads

LONDON | Cagdas Aksy at Barclays | A model framework, which takes into account economic/fiscal fundamentals and risk aversion factors, indicates a fair value level of about 200bp for 10y Italy and Spain vs Germany. The high debt problem for most peripheral countries is something that will take many years to reverse and the ECB’s commitment through OMT and potential QE can contain these concerns to a large extent, as long as it maintains its credibility. Under this more optimistic scenario, fair value moves down to 90-100bp. After 350-400bp of tightening over the past two years, 10y core periphery spreads are 30-40bp away from stretched levels.

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LCH.Clearnet punishes Italy’s and Spain’s fiscal adjustments, markets beg to differ

The Spanish minister of Economy Luis de Guindos’ visits to London earlier this month and to Washington on Friday have borne fruit. Yield of 10-year Spanish sovereign bonds have softly fallen back to the 5pc region (it was 5.6pc), while the CDS spread in comparison to German bonds has tighten and is now 316bp from 380pb last week. The Italian 10-year bond has also behaved in a positive way, with…