Week 45, 2011: Italian Bond Yields

Summary: As Italian 10 year government bond yields passed the 7% mark this week, gilt yields in the UK fell to an all-time low.

What does the chart show? The chart shows the daily gross yields (before taxes) on ten year government bonds, for the Italian government in blue and the UK government in red. The difference between the two is shown by the grey dotted line. Bond yields represent the interest payments required for the government to borrow money, so lower numbers mean more confidence in the government's ability to repay the debt.

Why is the chart interesting? It has been a week of extremes in the bond market, as the gap between Italian and UK government bond yields opened up to over 5%. For the Italians, yields reached 7% at one point, prompting some economists to predict that borrowing had become so expensive for the Italian government that they would be unable to pay back their loans. On the other hand, UK government bond yields reached an historic low of 2.106% at one point - the lowest since ten year bonds were introduced in the 1950s. This contrast is, of course, no coincidence, with political instability in Italy and the eurozone pushing investors away from Europe and into the relative stability of the UK.