Interest rate spreads on Italian sovereign debt have widened, but not sharply.

In Europe, risks spreads are rising on Italian and Spanish sovereign debt.

Even in the US corporate sector, defaults will rise, owing to sharply higher corporate bond spreads.

Until then, markets will keep pressure on sovereign spreads, making a self fulfilling crisis likely.

Sovereign interest rate spreads have been well behaved, the euro has strengthened, and equity markets have risen robustly.

Some sort of Brady bond to reduce and extend excessive sovereign debt will be necessary.

Moreover, the contagion to the sovereign spreads of the other PIIGS would be massive, tipping over several of these economies.

Sovereign spreads are already pricing the risk of a domino effect from Greece to Spain, Portugal, and other euro zone members.

Sharp rises in sovereign, corporate, and interbank liquidity spreads will increase the cost of capital, and increases in risk aversion, volatility, and sovereign risk will undermine business, investor, and consumer confidence further.

On the other hand, if policymakers maintain the stimulus for too long, runaway fiscal deficits may lead to a sovereign debt crisis (markets are already punishing fiscally undisciplined countries with larger sovereign spreads).

Noting the increasing voluntary use of collective action clauses in sovereign bond contracts by both developing and developed countries,

The healing process is also evident in Europe, though, unfortunately, it is effectively limited only to sovereign bond markets.

But now sovereign spreads in the peripheral eurozone countries have returned to the levels seen at the peak of the crisis in May.

Global stock markets have, overall, reached new highs. And credit markets show low spreads, while long term bond yields have fallen in most advanced economies.

Moreover, fiscal and sovereign debt strains are becoming worse as interest rate spreads for Spain and Italy have returned to their unsustainable peak levels.

While Europe has succeeded in stabilizing its sovereign bond markets, financial intermediation for small and medium size enterprises remains highly disrupted.

The widening spreads between the interest rate on German eurobonds and some of the other countries euro bonds show that global bond markets take this risk seriously.

The interest rate spreads for Italian and Spanish government bonds have dropped dramatically, corporate bond issues have resumed, and a sense of normalcy is slowly pervading the continent.

So why are an increasing number of developing countries resorting to sovereign bond issues? And why have lenders suddenly found these countries desirable?

Investors subsequent efforts to price in the risk of a eurozone breakup not the volume of sovereign debt caused bond yields to spike.

To the extent that this new lending is based on Africa s strengthening economic fundamentals, the recent spate of sovereign bond issues is a welcome sign.

In 2003, Mexico successfully issued new bonds which included CACs without incurring an increase in spreads, thus paving the way for a more frequent inclusion of CACs in emerging market bond issues.

Flu spreads more slowly if we all do our share, but it still spreads.

Until recently, the bond markets treated all euro sovereign debts as virtually equal, not raising interest rates on high debt countries until the possibility of default became clear.

Countries contemplating joining the bandwagon of sovereign bond issuers would do well to learn the lessons of the all too frequent debt crises of the past three decades.

Increasingly, the small spreads between sovereign bonds relied on the implicit assumption that no euro area member would be allowed to get into major difficulties, despite the constraints imposed on intergovernmental rescue operations.

Under the OMT program, the ECB can replace foreign outflows from sovereign bond markets through direct purchases, putting Spain on par with non eurozone countries like the United Kingdom.

To ensure that their sovereign bond issues do not turn into a financial disaster, these countries should put in place a sound, forward looking, and comprehensive debt management structure.

That's what spreads HIV.

Once the first two elements of the plan are in place, there should be little need for the third bond purchases by the ECB in the secondary market in order to narrow interest rate spreads and provide further confidence.

Extending this idea to sovereign debt, government bond covenants could stipulate that if a sovereign s debt GDP ratio exceeds a specified threshold, principal and interest payments to bondholders would be automatically reduced.

By February 2013, these ten African economies had collectively raised 8.1 billion from their maiden sovereign bond issues, with an average maturity of 11.2 years and an average coupon rate of 6.2 .

Tear gas spreads through the air.

While the policy caused credit spreads to narrow and bond market liquidity to improve, many banks have been using the extra money to rebuild their balance sheets (the equivalent of increased household savings) rather than lending it to businesses and individuals.

Like the World Bank, United Nations budget assessment payments are obligations of Member States, and accordingly United Nations obligations (i.e., the bond issue) would probably be eligible to be defined as quasi sovereign.

Bond offering

Many see Greece as the potential first domino to fall in a scenario that runs as follows the Greek austerity measures do not suffice, the debt crisis deepens, and the risk of a sovereign default spreads to other European economies.

In the meantime, the easing of sovereign interest rate spreads provides little comfort to the growing army of unemployed in southern Europe, where youth unemployment has reached dramatic heights close to 60 in Greece and Spain, and almost 40 in Italy.

Those people who buy them on the website have the otaku, and then they tell their friends, and it spreads and it spreads.

These bonds may be seen as a hybrid of a single bond and a double bond, each bond in the ring identical to every other.

It was recognized that, once a country adopted the euro, financial market discipline would be constrained to credit spreads on sovereign debt which turned out to be even smaller than foreseen, as interest rates converged to a remarkable degree until 2007 8.

The healing process is also evident in Europe, though, unfortunately, it is effectively limited only to sovereign bond markets. The real economy remains under enormous pressure in several countries, as economies contract and unemployment remains alarmingly high.

And, to the extent that there is even an informal price target associated with the ECB s commitment to purchase bonds, foreign outflows, at least from the sovereign bond market, are automatically replaced, in full, with ECB cash.

We are all sovereign States, with sovereign rights and responsibilities.

Emerging market interest rate spreads now are abnormally low.