Message #20300

[Psalm 51:17]

Spain Yields at 6% Show Bank, Economy Risk: Euro Credit
26 April 2012, by Emma Charlton and Lukanyo Mnyanda (Bloomberg)
http://www.bloomberg.com/news/2012-04-26/spain-yields-at-6-show-bank-economy-risk-euro-credit.html

Excerpt:

As Spain’s recession undermines efforts to cut the deficit, the risk of bank losses is keeping 10-year yields at almost 6% as investors speculate the government will be forced to bail out the financial system.

The nation’s 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy.

Banks threaten to disrupt the premier’s efforts as bad loans reach the highest levels in almost two decades.

“Spain is likely to need support in both the banking and government sectors,” said Jamie Stuttard, head of international bond portfolio management at Fidelity Investments, which has $1.2 trillion of assets.

“Government bond market developments hold the key.”

Yields on 10-year Spanish bonds surpassed 6% on seven trading days this month, boosting concern that borrowing costs may reach levels that prompted bailouts for Greece, Ireland and Portugal.

The rate was 5.77% at 9:03 a.m. London time.

Investors lost 1.2%, including reinvested interest, on Spanish debt repayable in one year or more over the past three months, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

The bonds are the worst performers in Europe after Greece.