Product providers in eurozone periphery face stiff challenge from bonds

The turmoil in the eurozone has made for a cautious investor base in Spain and its southern European neighbours. But it is the high yield offered by government bonds on the back of sovereign debt fears that has enabled them to become structured products’ main competitor. Sarah Nowakowska reports

The so-called deposit wars in Spain, when banks offered interest rates high enough to tempt most investors away from structured products, was subdued by new regulations and banking reforms put in place over the past year. Now, however, high-yielding government bonds in Spain and other countries on the southern periphery of the eurozone are posing a formidable new challenge to structured product providers.

As spreads have widened across peripheral Europe, the increase in government bond yields