Yields rose again Friday on Spanish bonds following a warning from the country's economy minister that the future of the euro will be determined in the next few weeks and will depend on the stability of Spain and Italy.
Yields on 30-year and 5-year bonds in Spain hit a euro-era record on Friday as the Valencia region of Spain filed for financial assistance.
Bloomberg reports Spain Bonds Slide as Valencia Aid Request Deepens Crisis
Just over two years ago I warned that Spain posed a significant threat to the EU area economies. This was a very popular stance, and since I'm more of a medium to long term strategist and Spain didn't experience any immediate pain, my stance was considered even more morose. Well, luckily, I supplied ample research to paying subscribers who were well prepared for what is now evidently coming down the pike.
By David White:Late Sunday the ECB announced that it would buy Italian and Spanish bonds in order to restore stability to the markets - in an effort to calm investor concerns that Italy and Spain won’t be able to repay their debts. This initially had a positive effect on the EU equities markets, but that effect faded. The major EU equities markets are currently down approximately 2%. Was the ECB action a failure? I don’t think so. The current PIIGS 10-year bond yields are in the table below. Those of Italy and Spain have fallen demonstrably today, Monday Aug.
It's not just Germany expressing reservations about the ECB's plan to "Save the Euro". Spain, Italy, and Germany all have concerns about the plan launched last week by ECB president Mario Draghi.
The interest rate which Spain has to pay to borrow rose above 6.0 percent in early trading on the eurozone bond market on Monday.The yield on Spanish 10-year debt bonds rose to 6.094 percent from 5.960 percent at the close of trading on Friday.The rise in the rate indicated by yields on existing bonds reflects deep concern among investors about the ability of Spain to reduce its annual public deficit.This has re-ignited tensions in the eurozone bond market, just days before a French presidential election in which the role of the bond market is a central issue.
The accusations of corruption against senior Popular Party officials, including Spanish Prime Minister Rajoy would not have necessarily been market move. The accusations raise more questions than they answer. However, Rajoy's denial may have deterred Asian traders early Monday, but European investors were more skeptical.
The selloff on Spanish and Italian bonds continued today with yields in Spain hitting euro-era record highs.
On the deficit side of matters, I do not believe Spain will meet its budget-deficit targets, and neither does Fitch.
Fitch Managing Director Ed Parker said Spanish Prime Minister Mariano Rajoy will miss budget-deficit targets this year “by a substantial margin.” according to a Bloomberg report.
By Navid Ghanooni:The spike in Spanish bond yields in the last couple of weeks reminded the global community that Greece is not the only euro zone member we should worry about. The Greek debt restructure and the ECB's Long-Term Refinancing Operations (LTRO) have now been overshadowed by the upward drift of Spanish bond yields. This rise has moved Spanish 10-year bond yields above Italian bonds - this has not occurred since August 2011.