mercoledì 16 novembre 2011

Public Disinformation Service about Economics

I'm a bit confused (or  maybe It's not me!) about what the TG1 (the most important italian public broadcaster) reported today. Indeed, the correspondent from the Paris stock exchange claimed that (link here in italian, see min.17.00) "the spread between the 10 years Oat and Bund peaked at 200 basis points, thus France borrows at two-fold higher interest rates than Germany". According to the correspondent, the spread is a multiplier rather than a difference on interest rates! In this way, if the Bund yield is 1.5% then the Oat yield should be 3%.
While I'm writing, the Bund yields 1.82% and the spread to the Oat is 190 bp (source: Financial Times). As a result, the Oat yields 1.82%+1.9%=3.72%. According to the journalist, the OAT yield should be 1.82%*1.9%=3.46%. In order to make things simpler, let's assume that the spread is 200bp (or 2.0%) as reported by the journalist. If the Bund yields 1.8% the Oat yields 1.80%+2.0%=3.80% that is more than two-fold. Conversely, according to the correspondent the Oat should yield 1.80%*2.0%=3.60%! The only way for the journalist to be right, is the scenario in which the Bund yields 2.0% so that the Oat yields 4.0%.
In conclusion, I really expect the TG1 to provide news properly in order to avoid to confuse the audience!

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