Cost of Insuring Spanish Debt Rises to Record
April 16th, 2012Via: Reuters:
Spanish 10-year government bond yields broke above 6 percent for the first time this year on Monday as concerns over the country’s ability to keep its finances under control pushed debt markets back into “crisis mode”.
Spanish yields were expected to rise further towards the panic-triggering 7 percent level beyond which debt costs are widely seen as unsustainable unless the European Central Bank resumes its bond purchases after a two-month break.
Yields on Germany’s benchmark 10-year Bund, viewed as the euro zone’s safest debt, hit a record low of 1.628 percent. The previous record was established in November 2011, at the height of the debt crisis before the ECB injected around 1 trillion euros of cheap three-year funds into the banking system.
“We’re back in full crisis mode,” Rabobank rate strategist Lyn Graham-Taylor said.
“It is looking more and more likely that Spain is going to have some form of a bailout. Assuming there is not an (ECB) intervention you would not see a cap on Spanish yields, they would just keep increasing.”
The latest blow to Spanish markets followed data on Friday that showed record borrowing by its banks from the ECB. Investors’ main fear is that banks parked most of the funds in domestic government debt, making them more vulnerable to sovereign stress.
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Underlining investor fears, the cost of insuring Spanish debt against default hit a record high of $520,000 a year to buy $10 million of protection.
Contagion fears pushed Italian 10-year yields about 12 bps higher on the day at 5.66 percent.
