Last Thursday Spain sold 10-year bonds at 3.06%, the lowest yield since 2005 and near an all time record. The average yield to maturity on Greek, Irish, Italian, Portuguese and Spanish debt has now fallen to 2.19%, the lowest since 1998. Interestingly, Spanish 10year bonds have averaged twice this level since 1991 yet today the countries debt to GDP continues to worsen (it was 93.9% in Q4). Obviously, the central bank backstop is the driving force, but the market seems to be pricing in something even more extreme. In essence, it looks like European debt of all types is once again becoming indistinguishable to a large degree. This sort of convergence implies that there is a greater chance of a supranational entity in Europe's future. Which makes the incomplete monetary union reflect something more like the USA where there is a unified Treasury, Central Bank and currency system. (VIEW LINK)
The moves in European debt are staggering, but even so, this signalling a monetary union is a very big call from the guys at Prag cap. Perhaps the moves are more symptom of the global quest for yield?