Is Spain AAA?

For the first time since 2007, investors are willing to lend five-year money to Spain at a lower interest rate than they charge the U.S. government. Yes, that’s not a typo.

Spain, where more than a quarter of the nation is unemployed is paying less than the world’s biggest economy, which also happens to own the global reserve currency of choice and the deepest and most liquid bond market anywhere. Today, Spain’s five-year bond yield dropped to as low as 1.71 percent, compared with about 1.72 percent for the comparable Treasury yield.

Is Spain AAA?

Provided we believe that “in price, is knowledge” — an increasingly bankrupt tenet in these days of central bank intervention and manipulation — what does this tell us?

For one thing, it reinforces the view that credit ratings on sovereign borrowers are pretty meaningless. Uncle Sam still enjoys the top Aaa grade from Moody’s and AA+ from Standard & Poor’s, while Spain languishes among the alphabet spaghetti of Baa2 (Moody’s) and BBB- (S&P).

So, Spain would have to be upgraded by no fewer than eight levels at Moody’s to get the same credit score as the U.S. Just as telling, Spain would only have to be downgraded by two levels to be classified as junk.

The main implication, though, is that investors are increasingly convinced that Mario Draghi and the European Central Bank are about to lace up their bond-buying boots, just as Janet Yellen and the Federal Reserve are scaling back on their yield-suppressing debt purchases. The bond market is telling us that it thinks quantitative easing is coming to the euro region.

Mark Gilbert is a Bloomberg View columnist and a member of the Bloomberg View editorial board. He has worked at Bloomberg News since 1991, most recently as London bureau chief. He is the author of Complicit: How Greed and Collusion Made the Credit Crisis.

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