More pain for Spain as borrowing costs surge
Source: Agencies |
June 27, 2012, Wednesday
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Print Edition
Print Edition
SPAIN'S borrowing costs soared in a pair of short-term auctions yesterday as investors worried that the country would not be able to manage an expensive rescue of its ailing banking sector.
The Treasury auctioned 3.1 billion euros (US$3.9 billion) in the two maturities, just above its target range, and demand was strong.
But the cost was very high - an indication that investors are concerned that the Spanish government will be stuck with huge expenses after a European bailout of its fragile banking system.
The interest rate on 3-month bills was 2.36 percent, nearly triple the 0.85 percent paid in the last such auction on May 22. The rate on the 6-month bills was 3.24 percent, nearly twice as much as the 1.7 percent paid in May.
The auction came a day after Spain formally requested financial aid for its banks from its partners in the eurozone.
Economy Minister Luis de Guindos did not say how much of the 100 billion euro lifeline the country planned to use.
While the bailout will help the banks, the government is ultimately responsible for repaying the money. That has raised fears that it will be stuck with huge liabilities and that?s evident in the country?s borrowing costs.
Addressing a parliamentary commission yesterday, de Guindos also said no new austerity measures have been set by Brussels as conditions for the loan.
That could irk other bailed-out countries that did have string attached to their rescues.
De Guindos reiterated that Spain?s three biggest banks ? Santander, BBVA and CaixaBank ? will not need aid to meet new capitalization requirements.
The minister said that banks which do accept loan money might have to separate toxic assets from clean ones.
A key problem for Spain is that its banks hold massive amounts of its government bonds. So as those bonds lose value, the banks take losses, fueling a vicious cycle of uncertainty over the banks? and the government?s finances.
Those concerns were evident in Moody?s decision on Monday to downgrade 28 Spanish banks, including international heavyweights Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA.
The Treasury auctioned 3.1 billion euros (US$3.9 billion) in the two maturities, just above its target range, and demand was strong.
But the cost was very high - an indication that investors are concerned that the Spanish government will be stuck with huge expenses after a European bailout of its fragile banking system.
The interest rate on 3-month bills was 2.36 percent, nearly triple the 0.85 percent paid in the last such auction on May 22. The rate on the 6-month bills was 3.24 percent, nearly twice as much as the 1.7 percent paid in May.
The auction came a day after Spain formally requested financial aid for its banks from its partners in the eurozone.
Economy Minister Luis de Guindos did not say how much of the 100 billion euro lifeline the country planned to use.
While the bailout will help the banks, the government is ultimately responsible for repaying the money. That has raised fears that it will be stuck with huge liabilities and that?s evident in the country?s borrowing costs.
Addressing a parliamentary commission yesterday, de Guindos also said no new austerity measures have been set by Brussels as conditions for the loan.
That could irk other bailed-out countries that did have string attached to their rescues.
De Guindos reiterated that Spain?s three biggest banks ? Santander, BBVA and CaixaBank ? will not need aid to meet new capitalization requirements.
The minister said that banks which do accept loan money might have to separate toxic assets from clean ones.
A key problem for Spain is that its banks hold massive amounts of its government bonds. So as those bonds lose value, the banks take losses, fueling a vicious cycle of uncertainty over the banks? and the government?s finances.
Those concerns were evident in Moody?s decision on Monday to downgrade 28 Spanish banks, including international heavyweights Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA.
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