10y Treasury yield & 10y BTP yield highly correlated
The U.S. 10y Treasury Yield and the 10y BTP yield have been correlated in their drift upward that will see both the Sovereign debt securities being priced within a Yield range 3.15%<3.68%, in order to discount persistent inflationary pressures in the economy, while also Central Banks would try to stabilise monetary policy for a high inflationary economic environment with many unknowns going forward.
In this environment of Sovereign debt yields correlating to economic growth and macro-economic factors, the yield spread differential between the 10y Treasury yield and the Spanish 10y Bonos yield, of 94 basis points seems highly out of place and a clear Sovereign debt market mispricing. The Spanish economy has no match for the U.S. economy, and insofar the spread differential does not reflect at all, the material economic factors and economy sizes. The 10y Bonos Yield 1.96% still lower than 10y U.S. Treasury yield 2.90% for a 94 basis point spread differential. This represents evidently a bond market mispricing, due to ECB indiscriminate yield curve compression, that could then result in an arbitrage opportunity, if not, clear Sovereign debt security price action correction that will have to see the 10y Bonos Yield clearly reflecting the real strength of the Spanish economy, compared to the U.S. and frankly to the Italian economy.
In our opinion, the Spanish Yield curve it's completely flowed making Bonos debt largely mispriced. The 10y BONOS YIELD, if priced correctly at the market, should be much higher than the U.S. Treasury and even of the 10y Italian BTP yield.
Thereby, won't be a surprise out of the blue to see a consistent SELL-OFF in Spanish sovereign debt that would reflect the debt market risk and the Spanish economy output potential and strength as in fact only Spain Debt/GDP ratio = 118.4% in 2021, there's no way the Spanish Sovereign Debt yield curve can be as low and mispriced.
In this environment of Sovereign debt yields correlating to economic growth and macro-economic factors, the yield spread differential between the 10y Treasury yield and the Spanish 10y Bonos yield, of 94 basis points seems highly out of place and a clear Sovereign debt market mispricing. The Spanish economy has no match for the U.S. economy, and insofar the spread differential does not reflect at all, the material economic factors and economy sizes. The 10y Bonos Yield 1.96% still lower than 10y U.S. Treasury yield 2.90% for a 94 basis point spread differential. This represents evidently a bond market mispricing, due to ECB indiscriminate yield curve compression, that could then result in an arbitrage opportunity, if not, clear Sovereign debt security price action correction that will have to see the 10y Bonos Yield clearly reflecting the real strength of the Spanish economy, compared to the U.S. and frankly to the Italian economy.
In our opinion, the Spanish Yield curve it's completely flowed making Bonos debt largely mispriced. The 10y BONOS YIELD, if priced correctly at the market, should be much higher than the U.S. Treasury and even of the 10y Italian BTP yield.
Thereby, won't be a surprise out of the blue to see a consistent SELL-OFF in Spanish sovereign debt that would reflect the debt market risk and the Spanish economy output potential and strength as in fact only Spain Debt/GDP ratio = 118.4% in 2021, there's no way the Spanish Sovereign Debt yield curve can be as low and mispriced.