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For the first time since 2010, Spanish ten year bonds traded at a lower yield than ten year Treasuries as the aftermath of the Eurozone crisis continues to unwind. With the ECB announcing a new round of easing measures last week, most European bonds plummeted in yield relative to Treasuries, which have actually been rising lately. But does this mean that Spanish bonds are less risky than Treasury bonds?

No, it actually doesn't. The interest rate paid on bonds is a combination of two different components: inflation and real yield. One component of real yield is credit risk, or the risk that the bond won't be paid in full. That risk is what drove up yields on Spanish bonds so high in the chart above. But the Eurozone economy is still struggling mightily, especially because inflation is very low. Because inflation is lower in the Eurozone, Spanish bond yields are lower than they would be if inflation was the same in Spain and the U.S. Below is a chart of the difference in yield between ten year Spanish inflation-linked bonds and ten year U.S. Treasury Inflation Protected Securities (TIPS). These bonds are protected from inflation, so differences in inflation between two different economies aren't important. As the chart shows, Spanish real yields are still much higher than U.S. real yields. One interpretation of this is that the risk of a default from Spanish bonds is higher than a risk of default from U.S. bonds.

There's an even better example of why Spanish bonds are still a more dicey proposition than U.S. Treasuries, despite having a lower real yield. Below is a chart showing the difference in yield between two bonds: a Treasury note that matures on February 28th, 2018, and a Spanish government bond issued in U.S. dollars that matures on March 6th, 2018. Since the two have similar maturities and are issued in the same currency, we can compare them on a like-for-like basis, just like corporate bonds are often measured against U.S. Treasuries.

As you can see, although the spread has compressed by a huge amount since July of last year, the Spanish bond is still yielding more than the U.S. Treasury note. The actions of the ECB and other policy measures have removed a huge amount of the risk in the Eurozone since the height of the crisis, and a voracious demand for yield has dragged spreads of all kinds down in corporate bonds, securitizations, and sovereign bonds. But for the time being, a Spanish bond is still riskier than a good old fashioned Treasury!