Spanish debt heading toward crisis levels

Mon Apr 16, 2012 7:23am EDT
 
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By Richard Hubbard

LONDON (Reuters) - Spain's debt yields broke above 6 percent on Monday as investors worried about its budget, knocking the euro and sending safe-haven German bonds to a record last set at the height of the euro zone crisis.

Signs of slowing global growth also undermined sentiment in commodity markets while European equity markets were mostly in positive territory after sharp falls last week.

Spanish stocks were lower, however, reflecting concerns about the country's ability to finance its deficit and debt with borrowing costs on the rise.

"We're back in full crisis mode," Rabobank strategist Lyn Graham-Taylor said.

"It is looking more and more likely that Spain is going to have some form of a bailout."

Mixed signals from the European Central Bank (ECB) over its willingness to help the market by restarting a special bond buying program and news Spanish banks have been heavy borrowers of cheap ECB funds also undermined confidence.

Spain's 10-year bonds were up 16 basis points at 6.15 percent, five-year yields topped 5 percent, while two-year yields spiked to 3.70 percent, all highs for this year.

Six percent was last reached in December and is psychologically important for markets. The rise typically accelerates after that level, putting yields on course for 7 percent beyond which debt costs are seen as unsustainable.   Continued...

 
A man takes a photo of displays showing market prices at the Tokyo Stock Exchange in Tokyo April 11, 2012. REUTERS/Toru Hanai