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Belgium follows Italy, Germany in seeing borrowing costs surge

Belgium successfully raises €450m in a bond auction, but pays its highest yield since 2000 – up by 1.3 per cent from last month.

Belgians wave a flag reading 'Thank you, Sir', praising the King for his role in steering the country through its political vacuum.
Belgians wave a flag reading 'Thank you, Sir', praising the King for his role in steering the country through its political vacuum.
Image: THIERRY CHARLIER/AP

BELGIUM’S POLITICAL VACUUM has continued to punish its economy, as a monthly bond auction saw its national debt agency pay its highest interest rate for 11 years.

The agency this morning successfully raised €450m through an auction of 10-year bonds, with demand significantly up on the last similar auction on October 31.

Bloomberg said the agency had been forced to pay a far higher rate than that last auction, however, with investors being given an annual return of 5.659 per cent on their investment – up from a mere 4.372 per cent four weeks ago.

The explosion in Belgium’s bond yield comes only a week after Germany held a 10-year bond auction which met with remarkably poor demand, forcing its central bank to step in and sweep up the remaining bonds on offer.

Italy and Spain have also seen their costs of borrowing rocket to unsustainable levels, with Italy having to pay 7.8 per cent interest on a two-year bond in order to raise €8bn last week.

Italy’s cost of borrowing on a 10-year basis remains above the 7 per cent deemed ‘unsustainable’, while Spain’s rate still hovers around the 6.6 per cent mark.

Belgium’s rate had been close to 5.9 per cent today, earlier, before coming down on news of the successful auction. Belgium’s rate has rocketed in recent days after the man charged with forming a government, Elio Di Rupo, offered to step down after failing to win a breakthrough.

Belgium’s credit rating was downgraded by Standard & Poor’s last Friday as result of the political impasse, which has seen the country without a cabinet for over 18 months.

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Gavan Reilly

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