Business

UK borrowing costs fall below Germany's

  • 24 November 2011
  • From the section Business
bond yields
Image caption The spread between yields on German and other eurozone debt has widened to record highs

The UK government's implied cost of borrowing has dropped below Germany's for the first time in 2.5 years.

If the UK was to borrow for 10 years today, it would pay an interest rate of 2.21%. Germany would pay 2.23%.

The move comes after Germany sold fewer bonds than expected at an auction, raising fears the eurozone debt crisis is affecting the German economy.

The bond market moves suggest that some investors consider the UK safer than Germany, the largest economy in Europe.

And the UK's low cost to borrow comes as some indebted eurozone countries - such as Italy and Spain - are paying more than 6% to borrow at auction.

The spread - or difference - between German debt and other eurozone nations, such as France and Spain, reached record highs this month. Spanish debt yields more than 5% more.

The UK has more than three times the foreign debt of Germany, according to Bank for International Settlements data.

On Wednesday Germany placed just 3.6bn euros (£3bn) worth of 10-year bonds, from 6bn euros on offer - which sent stocks and the euro lower.

Eurobonds debate

The yield on UK benchmark 10-year bonds first yielded fractionally less - 0.005 percentage points - than the equivalent German debt on Wednesday.

The interest rate is currently less than Germany's for the first time since March 2009.

The move comes as Italy's new Prime Minister Mario Monti is meeting Germany's Chancellor Angela Merkel and France's President Nicolas Sarkozy on Thursday.

Among the topics likely to be discussed is a proposal for so-called eurobonds - where the debts of each member are backed by all.

The EC is launching a consultation to assess if the 17 eurozone countries can issue the bonds to raise cash.

German Chancellor Angela Merkel has said that EU treaty changes rather than eurobonds will help solve the eurozone debt crisis.

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