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The improved tone of the European credit markets continued this morning as the government of Spain sold ten-year debt at the lowest yield since September 2011. With the decline in yields on sovereign debt, spreads in the region have also narrowed.

The charts below show the spreads of 10-year Italian and Spanish debt relative to 10-year German debt. Spreads in Italy are currently down to 312 basis points (bps), which is the lowest level since the spring. At a little over 400 bps, spreads on Spanish debt have gotten close but still have not taken out their lows from earlier this Fall.

(click to enlarge)

Source: European Spreads Remain Contained