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Spanish yields rise above 7 pct

Thursday, July 19, 2012 - 01:41

July 19 - Ten-year Spanish bond yields rose above the 7 percent line seen as unsustainable in the long-run on Thursday, after the country paid euro-era record yields for five-year funding as investors remain concerned about its finances and growth prospects. Jamie McGeever reports

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The prospect of Spain requesting a financial rescue became a bit more likely on Thursday, after a weak government bond auction. Investor interest in the 3 billion euros of debt on offer was much lower than the previous sale. And those who did buy the bonds, demanded a much higher rate of interest in return. The yield on the 5-year bond was 6.45 percent, the highest since 1996. Markets across Europe gave the auction the thumbs down. The euro fell, and benchmark 10-year Spanish bond yields rose back above the key 7 percent mark. Charles Diebel, head of rates strategy at Lloyds Bank Wholesale Banking and Markets, said that level of borrowing cost is unsustainable. A bailout for the Spanish government, on top of that already agreed for the banks, may come sooner rather than later. SOUNDBITE: Charles Diebel, head of rates strategy at Lloyds Bank "They're obviously having to pay a lot more for funding. If they continue to have to fund at these kind of levels then over the longer term they are in insolvant territory and that's the real problem here." This was in stark contrast to France, which also sold bonds on Thursday. Investors snapped up 8 billion euros of debt, and paid next to nothing for it - the yield on the 3-year bond was a mere 0.12 percent. So investors continue to make clear distinctions between what the consider to be the euro zone's weaker and riskier countries, like Spain, and safer bets, such as France. It's a trend that shows no sign of reversing any time soon. Jamie McGeever, Reuters

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Spanish yields rise above 7 pct

Thursday, July 19, 2012 - 01:41