(BFM Stock Exchange)-Spain, Italy, Greece and Portugal have recently seen their bond rates relax in a market which, in parallel, is much more cautious about large countries like the United States, Japan or the United Kingdom. These countries benefit from more robust growth prospects and/or controlled deficit.

The word “Grexit” (an exit of Greece in the euro zone due to public finances in agony) had been passed into everyday language. Beyond the Hellenic country, investors vigilant the states of southern Europe vigilant, whose bond rates had gone a few years ago, to the acme of the sovereign debt crisis in the euro zone.

To calm the markets, the president of the European Central Bank (ECB), Mario Draghi, had to let go of his famous “Whatever It Takes”, meaning that the European Central Bank would make the absolute necessary to preserve the euro. These Mediterranean countries were then sometimes designated, especially in the Anglo-Saxon press, like the members of the “Club Med”.

About ten years later, a 180 -degree turn took place on the side of investors, especially on the bond market.

>> Access our exclusive graphic analyzes, and enter into the confidence of the trading portfolio

In reverse of Japan and the United States

The bond market is currently changing under tension. Large countries with the aura formerly more enviable than that of the members of the “Club Med” saw their reputation be deceased with investors.

A simple glance at the evolution of bond yields shows this. According to Bloomberg data, the 10-year-old debt rate in the United States is 10 basic points (0.1 percentage points) over a month and 4 base points over a year. For the United Kingdom, rates have increased 4 and 34 base points respectively. On the Japan side, it goes to 9 base points over a month and 49 base points over a year.

Investors have several reasons for tension towards these countries. The United States suffers from the uncertainties caused by Donald Trump’s economic policy, both on customs duties and on its budgetary bill which risks weakening public finances a little more. These elements have created a certain distrust of the market vis-à-vis American assets, such as obligations. “The twin deficits (budgetary deficit and trade deficit, editor’s note) of the United States are now more difficult to finance and the market regime has changed,” noted last week Deutsche Bank.

Japan is struggling to find institutional investors to take over from the Bank of Japan in the financing of its debt emissions. The central bank of the Japanese country has started to reduce its bond purchases when it was almost the Japanese bond market in recent years. At the end of May, an auction (a kind of auction) of Japanese bonds at 40 has recorded the lowest request in 10 years.

Stephen Innes, from SPI AM, evokes an “alarm siren”. “If the Bank of Japan thought they could embark on the path of standardization while holding 52% of the bond market, it has just been faced with reality,” he explains. “And while Japan needed fiscal credibility, it is not found. Elections in the high chamber are approaching and political parties play bingo tax reductions,” said the specialist.

According to Reuters, Tokyo is thinking of buying some of its own obligations to appease the market.

The United Kingdom is suffering from a slow degradation of its public finances. “Sovereign states whose balanced budget is poor have been faced with a ‘buyers’ strike’ (on the debt market, editor’s note), as we particularly noticed in the United States, the United Kingdom and Japan,” noted Barclays, in late May.

The “Club Med” beats everyone on the rates

In comparison, the perspectives in the euro zone “are not so bad,” added the British bank.

Despite its desire to borrow more to finance the defense and the infrastructure, Germany sees the rate of its debt title at 10 years fall by 4 base points over a month and 10 base points over a year. France has a withdrawal of 8 points over a month but an increase of 36 points over a year, actually caused by the political uncertainty caused by the dissolution of the National Assembly, a year ago.

It is mainly the countries of the “Club Med” that see the pressure on rates decrease. The return on the debt to 10 years of Italy decreases from 18 base points over a month and 53 points over a year. Spain is at 18 points and 26 points respectively, Portugal at 10 and 23, and Greece at 15 points and 45 points.

This trend has not escaped Bloomberg. “Today, Italy, Greece and Spain have imposed themselves as the guardians of a certain budgetary prudence, by maintaining the deficits after having learned the lessons of forced austerity which brought down political leaders,” wrote the news agency in an article published on Monday, June 9.

There is, in fact, no big secret on this “Club Med” form on the debt market. These countries have either assured their public finances, or recorded better growth prospects or both.

“The countries of southern Europe – the former” Club Med ” – are now the economic engine of the area (Euro). An Italian bank (Unicredit which aims at Commerzbank, editor’s note) wishes to buy one of the main German banks (unimaginable five years ago), Portugal borrows at a lower rate than France, Greece can boast of a budgetary excess The highest in the euro zone, Spain has a PMI indicator (an activity indicator in the private sector, which is positive from 50, editor’s note) at 56, etc. “, wrote Christopher Dembik last year, investment advisor at Pictet AM.

Growth and Public Finances Santed

The latest economic projections of the European Commission illustrate this well. Spanish growth is expected 2.6% this year, that of Portugal at 1.8% and that of Greece at 2.3%, against an average of 0.9% in the euro zone. For the public deficit, Brussels projections are counting, for this year, on 2.8% of the gross domestic product for Spain, and even surpluses of 0.7% and 0.1% respectively for Greece and Portugal.

Italy remains a little apart, with relatively soft growth (0.7% expected in 2025) but a deficit which is on the right trajectory. After 3.4% in 2024, it was expected at 3.3% this year and 2.9% in 2026. Above all, recalls Barclays, Italy has a primary budget surplus (excluding debt load) and a surplus in terms of current accounts. This means that the country does not depend on external savings to finance itself.

Rome recently obtained several satisfaction from rating agencies. S&P noted its credit note to “BBB+” in April, noting progress in “the stabilization of public finances since the pandemic”. The kind of opinion that contrasts with those rendered towards France.

Also highlighting the budgetary efforts made by the transalpine country but also political stability, Moody’s has enhanced “BAA3” of Italy “positive”.

More broadly in the countries of the south of the euro zone (also called “periphery” countries), “budget deficits have all evolved in the right direction, which was not the case for many countries ‘Core’ (France, Germany, Belgium, Netherlands, Austria, etc.)”, told Bloomberg Felipe Villarroel, Portfolio Manager at Twentyfour Asset.

“These countries went far in the problems, in suffering (in the early 2010s, note) and since we saw a restructuring, another way of conceiving the economy, with costs that have dropped enormously. But efforts after a few years bear fruit,” said, for its part, explained in April on News Bulletin 247 Alain Bokobza, responsible for the strategy of world allocation CIB.

The market specialist believes that this new deal with the bond is intended to last. This because European countries in the “north of France” intend to strengthen military spending and their infrastructure and therefore spend more. “The bond markets of these countries are in danger. It is possible in the long term, by 2026, that the rates in Germany do not remain as low as they are today,” he argues.

In parallel, in “the countries of the South”, “there are many more restrictions on tax expenditure, this will protect the bond markets in the coming years,” continues Alain Bokobza. The strategist concludes that the peripheral countries of the euro zone will not become a refuge for investors in the euro zone. “This is already the case,” he says.