Bonds: Spain suffers as EC forecasts more pain

Date: Friday 11 May 2012

These were the yields and movements on some of the most watched 10 year bonds by the close in Europe:

Spain: 6.01% (+2bp)
Italy: 5.51% (-1bp)
France: 2.80% (-2bp)
Germany: 1.52% (-2bp)
UK: 1.96% (-2bp)
US: 1.84% (-2bp)

The Spanish yield rose after the European Commission said Spain’s budget deficit is likely to reach 6.4% of GDP this year, compared to the 5.3% target promised by the Spanish government.

In the same release the EC forecast the Eurozone economy would, in total, contract by 0.3% this year before returning to growth of 1% in 2013.

Separately Spain announced a big overhaul of its banking system saying it will make its banks set aside more money to cover possible defaults on home loans - currently they provision 7% of the value of the loan, that is set to rise to 30%.

Whether this will be enough to convince a sceptical market that the Spanish financial system has finally been cleaned up is a moot point.

BS

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