Monday 18 December 2017

Debt Crisis: Cost of Spanish borrowing reaches euro-era highs

Miners block a road during a protest in Leon, Spain, yesterday
Miners block a road during a protest in Leon, Spain, yesterday

Richard Hubbard

SPANISH bond yields hit euro-era highs on Tuesday as rising skepticism over a €100bn euro bailout for the country's banks drove investors away from Spanish debt, while world stocks dipped and the euro edged lower against the U.S. dollar.

Wall Street opened higher then swiftly pared gains following a late selloff on Monday, and US benchmark 10-year note prices fell.

Spanish government bond yields were at their highest since the euro was launched in 1999 at over 6.8pc on concern on how difficult it may be for Madrid to access debt markets in the longer term and as current holders of Spanish debt worry about falling to the back of the line for repayment.

Italian yields also rose as attention turned to the state of Rome's finances, with Austria's finance minister saying Italymay need a financial rescue because of its high borrowing costs. The statement drew a furious rebuke from the Italian prime minister.

Concerns that the Greek election on June 17 would bring to power parties opposed to its current bailout plan and force a disorderly exit from the euro zone were rekindled by a report that EU officials were considering ways to manage the fallout.

"There's no clear driver for markets until we get some clarity on Greece and the deal in Spain," said David Carter, chief investment officer at Lenox Wealth Advisors in New York. "We'll just drift higher and lower with no real conviction."

The Dow Jones industrial average added 28.23 points, or 0.23 percent, to 12,439.46. The S&P 500 Index edged up 0.16 points, or 0.01 percent, to 1,309.09.

The Nasdaq Composite dipped 1.90 points, or 0.07 percent, to 2,807.83.

MSCI's world equity index edged 0.2 percent lower and the FTSEurofirst 300 index of top European shares was also down 0.2 percent.

The euro was trading near breakeven for the day versus the greenback, around $1.246.

"Investors will likely continue to sell the euro into strength, especially with Greek elections on Sunday and a European Union summit next week, which should be heavy in headlines," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "Any euro rally should prove short-lived."

The growing impact of the euro zone crisis on the economic outlook was underlined by data showing a surprise fall in British manufacturing output in April.

Global growth concerns also pushed Brent crude oil prices down 0.8 percent to $97.20 a barrel. U.S. oil was little changed at $82.70 a barrel after hitting a one-year low at $81.07.

Irish Independent

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