Spain's borrowing rates reach a high after Moody's downgrade
Source: Agencies |
June 15, 2012, Friday
|
Print Edition
Print Edition
SPAIN'S borrowing rates have hit a high not seen since the country joined the euro in 1999 after Moody's downgraded the country's ability to pay down its debt.
The interest rate - or yield - on the country's benchmark 10 years bonds rose to a record 6.96 percent in early trading yesterday, close to the level which many analysts believe is unsustainable in the long term and at which countries such as Greece, Ireland and Portugal have sought an international bailout.
Moody's downgraded Spain's sovereign debt three notches from A3 to Baa3 on Tuesday - just one grade above "junk status."
Moody's said the downgrade was due to the offer from eurozone leaders of up to 100 billion euros to Spain to prop up its failing banking sector, which the ratings agency believes will add considerably to the government's debt burden.
The lowered score means that even fewer investors will buy Spanish debt as organizations such as pension funds are mandated not to invest in assets with such low creditworthiness.
The bailout was meant to recapitalize the banking system and calm Europe's debt crisis. Instead, investors seem unnerved by the government taking on extra debt and have pushed Spanish bond yields - a measure of market jitters - higher all week.
Moody's said Spain's ability to raise money on global markets was being hindered by high interest rates, a situation which had led it to accept eurogroup funds to recapitalize debt-burdened banks.
Some details of what the bailout might look like began to emerge yesterday. European officials are considering selling off banks' assets as part of the plan to prop up the Spanish banking sector, a spokesman for Competition Commissioner Joaquin Almunia said.
"Liquidation is always looked at," said Antoine Colombani. "We prefer to liquidate when it's cheaper for the taxpayer."
Since a weekend deal to save the banks involves first lending the money to Spain, there are concerns that taxpayers are ultimately on the hook for the banks' bad decisions.
The interest rate - or yield - on the country's benchmark 10 years bonds rose to a record 6.96 percent in early trading yesterday, close to the level which many analysts believe is unsustainable in the long term and at which countries such as Greece, Ireland and Portugal have sought an international bailout.
Moody's downgraded Spain's sovereign debt three notches from A3 to Baa3 on Tuesday - just one grade above "junk status."
Moody's said the downgrade was due to the offer from eurozone leaders of up to 100 billion euros to Spain to prop up its failing banking sector, which the ratings agency believes will add considerably to the government's debt burden.
The lowered score means that even fewer investors will buy Spanish debt as organizations such as pension funds are mandated not to invest in assets with such low creditworthiness.
The bailout was meant to recapitalize the banking system and calm Europe's debt crisis. Instead, investors seem unnerved by the government taking on extra debt and have pushed Spanish bond yields - a measure of market jitters - higher all week.
Moody's said Spain's ability to raise money on global markets was being hindered by high interest rates, a situation which had led it to accept eurogroup funds to recapitalize debt-burdened banks.
Some details of what the bailout might look like began to emerge yesterday. European officials are considering selling off banks' assets as part of the plan to prop up the Spanish banking sector, a spokesman for Competition Commissioner Joaquin Almunia said.
"Liquidation is always looked at," said Antoine Colombani. "We prefer to liquidate when it's cheaper for the taxpayer."
Since a weekend deal to save the banks involves first lending the money to Spain, there are concerns that taxpayers are ultimately on the hook for the banks' bad decisions.
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