Business World

Sunday 18 March 2018

Spanish borrowing costs soar to all-time high as markets worry

Spain's Prime Minister Mariano Rajoy (C) is questioned by reporters after a session at the Spanish parliament in Madrid. Photo: Reuters
Spain's Prime Minister Mariano Rajoy (C) is questioned by reporters after a session at the Spanish parliament in Madrid. Photo: Reuters

Lucy Meakin and Emma Charlton

SPANISH borrowing costs jumped to their highest levels in the history of the euro as European government bonds slumped over concern that politicians aren't doing enough to prevent the currency bloc's financial woes from deepening.

Spain's 10-year bonds were yielding 6.71pc yesterday evening, not far below the 7.03pc yield on Irish nine-year bonds.

French and German bonds slid as Fitch Ratings said it may cut credit ratings across Europe because politicians are failing to bring the debt crisis under control. The yield on Italian 10-year securities jumped to 6.65pc which was the highest since January as the country prepared to sell bonds today. Germany will offer 10-year bonds, Europe's benchmark securities, today, after Austria and the Netherlands auctioned debt yesterday.

"People are getting frustrated, there is disaffection with Europe and the situation is not getting any clearer for investors," said Gianluca Ziglio, an interest-rate strategist at UBS in London. "Many are deciding that they would rather stay out of the market for a while, even in the core countries."

Spain's 10-year yield rose 20 basis points to 6.71pc at 5pm, after reaching 6.83pc earlier, the highest since the euro was introduced in 1999.

Ratings in the currency bloc, including those of AAA nations, are under "strong downward pressure", Fitch managing director Ed Parker said. If there's "no light at the end of the tunnel soon" the risk of a breakup of the 17-member euro area will rise, he added. "Last minute" solutions are raising the cost of managing the crisis, he said.

One of the reasons behind the Spanish drop was that Fitch downgraded 18 of the nation's banks.

German bunds declined, with the 10-year yield rising 12 basis points to 1.42pc. Germany will auction as much as €5bn of the bonds today as well as inflation-linked debt maturing in April 2018.

Japanese rating company R&I cut Spain to BBB+ from A yesterday, citing a decline in financing capacity.

The ECB bought Spanish and Italian government bonds last year -- using its Securities Markets Programme -- to try to stop the debt crisis from spreading to the euro region's third -- and fourth-biggest economies.

The programme was put on hold earlier this year after the central bank supplied €1trn of three-year loans to euro-area banks in December and February. (Bloomberg)

Irish Independent

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