Spain's Borrowing Costs Just Keep Rising


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It was revealed on Monday that Spanish 10-year government bond yields rose above 6%, fuelled by fears over the health of the country and the risk of Eurozone contagion.

While there are calls being made for the European Central Bank to help Spain through the resumption of the bon-buying program, any such move may be put on hold due to the yield on Spain's 10-year sovereign debt rising to 6.14%. Last week, it ended ay 5.65%.

In addition, the cost of insuring the debt went up. Spanish credit defaults rose to 511.5 basis points, a record. Thanks to that, it will cost 511,500 euros to insure 10 million euros of Spanish government debt annually over a five-year period.

Despite the fact that tough austerity measures have been introduced in Spain, investors and analysts continue to look at the country nervously. Even a recent cash injection by the ECB hasn't managed to calm those fears.

It is not only Spain that is suffering though. Negative sentiment continues to affect Italian and Portuguese government bonds too. Monday saw Italian 10-year government bonds trading up 9bp at 5.62%, while Portuguese bonds were up 6bp at 12.62%. Over in Ireland, benchmark yields are the closest they have been to Spain's since August 2010.

When the ECB made its three-year loan offer to Eurozone banks, Spanish and Italian were two of the strongest participants. That offer saw over 1 trillion euros put into Europe in two long-term refinancing operations in both December 2011 and February 2012.

Much of the money from that was used by Spanish and Italian banks to purchase government bonds in 1Q. However, any benefits of the operations seem to be worn out.

Some analysts are now saying that Spain is now in full crisis mode, and that it is looking increasingly likely that the country will be looking for a bailout sooner rather than later.

Meanwhile, Spain's borrowing costs have led to muted world markets, with fears of a potential bailout obviously on a lot of minds.

Follow me @BCallwood .

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