Spain's 5-year borrowing costs surge
Source: Bloomberg News |
July 20, 2012, Friday
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Print Edition
Print Edition
SPAIN'S five-year borrowing costs surged as the government braced for protests against spending cuts, while France paid record-low yields of less than 1 percent to sell similar securities.
Spanish five-year notes yielded an average 6.459 percent at auction yesterday, compared with 6.072 percent a month ago. French yields for the same maturity fell to 0.86 percent, almost half of last month's level. Spain sold debt as lawmakers debated spending cuts in Parliament, where police erected barriers and stood guard.
Spain, which asked other euro nations for 100 billion euros (US$123 billion) of aid last month to bail out its banks, is fighting to maintain enough market access to be able to fund its budget deficit.
Spain's 10-year benchmark bond yields surged through the 7 percent threshold that prompted sovereign bailouts in Greece, Ireland and Portugal. It traded at 7.025 percent at 12:45pm in Madrid. While the Treasury sold 2.98 billion euros of notes, in line with its maximum target, demand for two-year securities was 1.9 times the amount sold, compared with 4.26 times at a sale last month.
"Nothing looks good," Ioannis Sokos, a fixed-income strategist at BNP Paribas in London, said. "Spanish banks have been much less aggressive in buying domestic bonds" as the effect of 1 trillion euros of unlimited three-year loans by the European Central Bank fades.
Spanish banks have been propping up the domestic bond market and increased their holdings in the first quarter as they channeled ECB funds into government debt. They scaled back in April and May, while non-resident investors also continued to reduce their holdings, Treasury data show.
Spanish Prime Minister Mariano Rajoy said on Wednesday the 65 billion euros of spending cuts and tax increases announced last week are necessary to prove to investors that Spain is a credible borrower. The measures, being debated in Parliament yesterday, include an increase in sales tax, which Rajoy's People's Party had opposed, and reductions to jobless benefits, which Rajoy had pledged not to touch during the election campaign last year.
Spanish five-year notes yielded an average 6.459 percent at auction yesterday, compared with 6.072 percent a month ago. French yields for the same maturity fell to 0.86 percent, almost half of last month's level. Spain sold debt as lawmakers debated spending cuts in Parliament, where police erected barriers and stood guard.
Spain, which asked other euro nations for 100 billion euros (US$123 billion) of aid last month to bail out its banks, is fighting to maintain enough market access to be able to fund its budget deficit.
Spain's 10-year benchmark bond yields surged through the 7 percent threshold that prompted sovereign bailouts in Greece, Ireland and Portugal. It traded at 7.025 percent at 12:45pm in Madrid. While the Treasury sold 2.98 billion euros of notes, in line with its maximum target, demand for two-year securities was 1.9 times the amount sold, compared with 4.26 times at a sale last month.
"Nothing looks good," Ioannis Sokos, a fixed-income strategist at BNP Paribas in London, said. "Spanish banks have been much less aggressive in buying domestic bonds" as the effect of 1 trillion euros of unlimited three-year loans by the European Central Bank fades.
Spanish banks have been propping up the domestic bond market and increased their holdings in the first quarter as they channeled ECB funds into government debt. They scaled back in April and May, while non-resident investors also continued to reduce their holdings, Treasury data show.
Spanish Prime Minister Mariano Rajoy said on Wednesday the 65 billion euros of spending cuts and tax increases announced last week are necessary to prove to investors that Spain is a credible borrower. The measures, being debated in Parliament yesterday, include an increase in sales tax, which Rajoy's People's Party had opposed, and reductions to jobless benefits, which Rajoy had pledged not to touch during the election campaign last year.
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