The Chart That Keeps Mario Draghi Up At Night

With peripheral European sovereign bond yields at or near record lows, no matter how much GDP gets downgraded (Italy), banking system collapses (Portugal), or loan losses surge (Spain); things must be great for borrowers, right? Wrong! And this is exactly what keeps Mario Draghi up at night... In fact, as the following dismal reality chart shows, real corporate lending spreads are at record highs... crushing the credit-created-growth dream of a European Renaissance.

As Bloomberg Briefs' David Powell notes,

One of the euro area’s greatest monetary problems is the large divergence in real corporate borrowing rates. For example, the spread between the real corporate borrowing rates in Portugal and Germany for loans over five years up to and including 1 million euros stood at 5.09 percentage points in May. The spreads versus Germany are 2.91 percentage points for Italy and 2.65 percentage points for Spain.

Those spreads rise using the latest inflation figures, which are for June. They measure 5.39 percentage points for Portugal, 3.51 percentage points for Italy and 3.25 percentage points for Spain. The spreads on loans of that category are among the highest. That may be because they are mostly provided to small and medium-sized corporations.

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The bottom line is for these to improve, Draghi (or the ECB and thus the German taxpayers) will need to subsidize lending to SMEs in the periphery by a massive amount... the problem being, no one knows if there is even demand for this debt as the region deleverages in its balance sheet recession.

Comments

[buzzsaw99]

the spread that has me puzzled is the german bund - ust spread. maybe it will persist but i doubt it.

[bag holder]

edit: wait no, I know nothing about bonds, I'm not falling into this trap

[buzzsaw99]

saw your first post and subsequent edit. i figured someone might make that point and had a response at the ready. that argument could have lasted all night if both sides were entrenched. lulz

strange how the euro sovereign bond to corporate junk spread is so much higher than the ust - junk spread. I guess the euro banks have their hands full just funding the piigs right now. if yellen really does taper some things are going to change that's for sure.

[Thomas]

It's a bond caldera that is so big that you can only see it from space. When it finally blows, it will be epic. Soon it will be time to grip it and rip it.

[Luckhasit]

Don't you know? Nothing keeps Super Mario up at night.

Remember when he threatened to blow up the EU? Man has balls of steel and will call everyone's bluff. 

Hookers and cocaine for everyone.

[Elvis the Pelvis]

I agree.  The man's a fearless psychopath.  Bitchez.

[Luis_]

Yes, that's what it takes to be a central banker...