News Column

Spain Risk Premium Remains at Record Levels

May 29, 2012

Spain's risk premium remained on record levels Tuesday, despite reassurances from the government that it did not need the European Union to rescue Spanish banks. Spanish 10-year-bonds had a yield of 6.48 per cent, practically the same as on Monday.

The risk premium, which measures the spread between German and Spanish benchmark bonds, stood at 511 basis points, the same level at which it closed on Monday, after momentarily rising to 513 basis points. That was the highest it has reached in the euro era.

The Madrid stock exchange meanwhile picked up slightly, with the Ibex 35 index rising by 0.2 per cent in the morning, after suffering losses the previous day.

Prime Minister Mariano Rajoy tried to calm markets on Monday by saying Spanish banks did not need funds from the EU. He also stressed the need to support the debt of countries which, like Spain, were "meeting their engagements" with the EU. The comment was interpreted as being addressed to the European Central Bank.

However, markets were far from reassured by the news that BFA, the parent group of the troubled bank Bankia, announced net losses worth 3.3 billion euros (4.1 billion dollars) for 2011 late Monday.

In late April, the group had still claimed a profit of 40.9 million euros.

Bankia, which holds nearly 32 billion euros in toxic real estate assets, was partly nationalized earlier this month. It subsequently requested 19 billion euros in state aid, on top of 4.5 billion it has already received.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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