Soaring Spanish Bond Yields Another Hit to Growing Eurozone Debt Crisis

By: Money_Morning

Diane Alter writes: Investors today (Monday) have been selling on news that Spain might need more bailouts as its 10-year yield reached a record high.

Spanish bond yields reached a record high of 7.56% and the latest unemployment rate sits at a miserable 24.6%.

Global stock markets plummeted Monday after Spain's borrowing costs soared on a third consecutive day amid concerns that an intensifying recession in the region would require Spain's government to request a full-fledged bailout.

The fresh worries come on the heels of a report Friday from the Valencia region, revealing that its economy would contract by 0.5% in 2013 instead of 0.2%, as had been forecast.

Spanish bond yields broke the critical 7%-mark last Thursday, a level many analysts worry could eventually alienate Spain from public markets and force it to seek a bailout similar to its ailing neighbor Greece.

"Those levels indicate that Spain may soon struggle to fund itself in the market and therefore unless some positive action is taken, the country will need a full bailout," Gary Jenkins, managing director of Swordfish Research told the Associated Press.

The deeper worry rattling markets worldwide is that with so many of its 17-member nations needing bailouts, European finance ministers will have a tough time finding funds to rescue an economy as large as Spain. Spain is the region's fourth-largest economy after Germany, France and Italy.

Spanish Bond Yields: No Relief With Billions in Debt Maturing
A combined 35 billion euros ($42.4 billion) in debt matures this year across Spain's struggling regions.

Unchecked spending and ambitious but unprofitable infrastructure, has led Spain to its current afflictions. The central government's own deficit-cutting plans have lagged as a ballooning recession has gnarled Spain's tax receipts.

In a measure to offset its growing woes, Spain's Parliament on Friday approved a new austerity budget package worth 65 billion euros ($78.8 billion). The package includes a sales tax increase and a proposal to eliminate Christmas bonuses for civil servants. That has left scores of Spaniards in a less-than-festive mood, engaging in protests and roadblocks across the country.

While the Valencia region, in order to meet debt obligations and pay suppliers of health care and other basic services, is the first to seek aid from the new Spanish government fund, the region of Murcia looks ready to be the next up. And there are about a half-dozen other Spanish regions on tap to follow.

Eurozone officials on Friday signed off on an interim payment of 30 billion euros ($36.4 billion) for Spain's banking sector. Spain has still not made public how much of the 100 billion euros ($121.2 billion) of available banking funds it will actually need, or how the funds will be distributed.

Global Effects of Eurozone Debt Crisis
Spain and Italy on Monday reinstated a short sale ban on stocks amid a sharp selloff in bank shares in efforts to slow market turmoil. The exchange agonies were sharp and widespread. Bond yields ratcheted higher and the euro traded below its lifetime average against the U.S. dollar.

Also fueling global mayhem was the expected arrival in Athens Tuesday of a trio of central bank lenders who will examine Greece's progress on meeting the terms of its bailout package.

Anxieties have once again been stoked that Greece looks close to a Eurozone exit. According to German magazine Der Spiegel, high ranking representatives in Brussels say the International Monetary Fund (IMF) may not take part in any additional financing for Greece.

Reuters reported on Monday that Alexander Dobrindt, a leading German conservative, said Greece should start paying half of its pensions and state salaries in drachmas as part of a gradual departure from the Eurozone.

Monday's carnage was widespread. Markets worldwide tumbled, with stocks in the U.S. rattled in the wake.

"It was a wipeout in the overseas markets," Brian Battle, director of trading at Performance Trust Capital Partners in Chicago told Reuters. "We are going to echo that as confidence gets sucked out. The problem is bigger and more intractable than what happened in (the financial crisis) in '08."

Source :http://moneymorning.com/2012/07/23/soaring-spanish-bond-yields-another-hit-to-growing-eurozone-debt-crisis/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.