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Madrid about to lose market access as Spanish bond yields hit record highs
By Catholic Online (NEWS CONSORTIUM)
July 23rd, 2012
Catholic Online (www.catholic.org)
July 23rd, 2012
Catholic Online (www.catholic.org)
The debt-strangled nation of Spain is being pushed out of markets as
yields on sovereign 10-year, 5-year, and 2-year bonds hit record highs
this week. The euro continues to slide against the U.S. dollar. The ECB
stuck in reactive mode, and pressure is mounting on Spain's regions
after Valencia already asked Madrid for a bailout.
A weak auction last week, suggesting domestic buyers are becoming exhausted has come on the heels of a bailout request from autonomous region Valencia. There are regional newspaper reports that indicate several other regions, including Catalonia and Murcia, could ask Madrid for cash to meet debt payments and cover widening deficits.
Murcia's regional president, Ramon Valcarcel, has recently confirmed to reporters that they will request €300 million from an emergency liquidity fund. Valcarcel denied that Murcia was being bailed out.
This breaking news has led to a dangerous flattening of the Spanish yield curve. Yields on benchmark 10-year bonds hit a record 7.57 percent, while 5-years reached 7.35 percent and 2-years were trading at 6.55 percent.
Top European policymakers last week gave their final blessing for a €100 billion bank bailout for Spain, €30 billion of which should be available by the end of the year.
Barclays' economics research team believes the structure of the bailout "appears well designed to clean up problem loans from banks' balance sheets and resolve non-viable institutions."
If bond yields aren't brought down, Spain will face either increasingly punitive borrowing costs to fund itself, or it might have to suspend or reduce issuance. Spain is ultimately on the brink of losing market access and requiring a Troika program.
The single-currency euro continues to make new lows. At one point, the euro was trading at 1.2070 against the U.S. dollar, below its "lifetime average," according to Bloomberg. Dollar strength has kept gold at bay.
Traditionally seen as a safe-haven, the precious metal has lagged this year, and slid 0.3 percent to $1,582.60 an ounce. The European sovereign debt crisis has spread to U.S. companies too, with Johnson & Johnson, McDonald's, and Coca-Cola all mentioning its adverse effects on their most recent earnings releases.
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