Investors increase pressure on Spain to seek aid

Tue Sep 18, 2012 1:11pm EDT
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By Julien Toyer and Paul Day

MADRID (Reuters) - Investors on Tuesday piled pressure on Spain to request international aid and trigger a European Central Bank bond-buying program seen as inevitable to help the country finance its debt, with the benchmark 10-year bond rising to just over 6 percent.

Yields at the latest debt sale fell slightly from last month but remained at 2.835 percent on the 12-month bill and at 3.072 percent on the 18-month paper, offering little hope the country can finance itself at reasonable levels without seeking assistance.

The blue-chip Spanish index Ibex .IBEX lost 1.1 percent, ending a two-week rally that began after the ECB said it was ready to help distressed euro zone countries.

Spain is at the center of the euro zone debt crisis, now in its third year, with investors concerned that Madrid is unable to bring down its massive public deficit and control its soaring debt.

The government has already requested a European lifeline of up to 100 billion euros for its banks, but investors are not convinced that the country can meet its financial obligations and return to economic growth without international assistance.

ECB Governing Council member Luc Coene warned Prime Minister Mariano Rajoy against delaying triggering the program on Monday, saying it would not take long for yields to rise if he did.

But Deputy Prime Minister Soraya Saenz de Santamaria said on Tuesday the government was still considering the terms of a European bailout, which would be a condition of ECB help, a stance that is weighing on investors' patience.

"I think we're in a bit of political limbo where markets are just waiting for Spain to ask for help, because ultimately if Spain doesn't ask, the verbal boost from the ECB is going to fade away," said Jo Tomkins, an analyst at consultancy 4Cast.   Continued...

Spanish Prime Minister Mariano Rajoy answers a question during a parliamentary session at the Spanish parliament in Madrid September 12, 2012. REUTERS/Andrea Comas