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Bonds: Spanish yields enter the red zone

Date: Monday 23 Jul 2012

Bonds: Spanish yields enter the red zone

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

Spain: 7.50% (+23bp)
Italy: 6.34% (+17bp)
France: 2.14% (+6bp)
Germany: 1.17% (-3bp)
UK: 1.47% (flat)
USA: 1.43% (-2bp)

Spanish 10 year bond yields rose to the highest since the euro was introduced on money markets in 1999.

Investors have been spooked by reports six of the country’s 17 regions could need a central government bailout. The market does not believe the federal finances are up to lending local governments the €26.4bn they are reported to need.

The regions on the hook are thought to include Catalonia, Castilla-La-Mancha, Murcia, the Canary Islands and the Balearic Islands.

All previous recipients of Eurozone sovereign bailouts, Portugal, Ireland and Greece requested help when their yields rose over 7%. Spain is now well above that level, with many observers voicing concerns the country will simply not be able to refinance its debts.

If Spain, the Eurozone’s fourth largest economy, were to need an aid package it is a moot point as to whether the region has the financial firepower to help. This in turn hints at the final endgame of the now four year long crisis: the possible breakup of the eurozone.

BS

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