Wednesday, December 08, 2004

Strange Times

Unless I'm very much mistaken, The Markets now consider Italian short-term government debt less risky than US Treasury Bills.

Maturity Coupon Price Yield Change

Italy 09/06 2.75 100.7700 2.30 -0.01
04/09 3.00 100.5400 2.89 -0.02
02/15 4.25 103.9400 3.81 -0.03
08/34 5.00 108.8080 4.51 -0.01

US 11/06 2.88 99.8750 2.94 +0.02
11/09 3.50 99.5859 3.59 -0.12
11/14 4.25 100.1563 4.23 -0.01
02/31 5.38 107.0000 4.90 -0.01
Figures from the mighty FT (pdf), correct at 2300 hours yesterday.

I'm not sure anybody expected that when the euro was invented. That's even with the stories about whether or not the Italian government cooked the books to get through the Maastricht criteria for entry to the €. (linky, more) Mind you, when you take a look at this sort of thing (Brad DeLong), it all makes much more sense. One question that arises from those figures, though, is why UK Treasuries with similar coupons are yielding more than the Italians. It's not as if the UK Government is any more likely to default or monetise than Italy. Could it be that this is pricing in the situation where the dollar declines faster against sterling than against the euro - leaving the UK uncompetitive on both sides? And isn't that just what so many pro-Europeans used to say about the pound as a "punchbag currency" between the dollar and euro zones?

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