News Column

Spain's Bond Yield Hits Record High

July 23, 2012

Spain's borrowing costs soared on Monday, with the yield for 10-year bonds reaching a record 7.5 per cent.

Seven per cent is regarded as the level above which Spain cannot afford to obtain financing in the long term.

The spread measuring the difference between Spanish and German 10-year bonds rose to a record 640 basis points.

Analysts attributed the rise partly to reports that three among Spain's 17 semi-autonomous regions were considering seeking a financial rescue from the government. The eastern region of Valencia has already done so.

A liquidity fund worth 18 billion euros (22 billion dollars) was created last week to help highly indebted regions. The regions are largely responsible for Spain's budget deficit, which amounted to 8.9 per cent of gross domestic product in 2011.

Markets have not been calmed by a 65-billion-euro austerity package announced by the government, nor by a eurozone pledge to inject up to 100 billion euros into Spain's ailing banks.

The European Central Bank, meanwhile, has not heeded Spanish calls to help lower Spain's borrowing costs by buying Spanish debt.

A full-scale rescue of the eurozone's fourth-largest economy was looking increasingly likely, the daily El Pais said over the weekend.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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