Spanish 10-Year Yields Soar

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Source: Bianco Research

Euro Area Ready to Act as Spain Yields Surge, Frieden Says  (Bloomberg.com)

The euro area is ready to act to help Spain as the country’s borrowing costs soar, Luxembourg Finance Minister Luc Frieden said.While Frieden said no work is being done for a bailout of the Spanish government, policy makers in the 17-nation euro area must be prepared to move quickly. “In such difficult times as we are in, one has to follow the situation on a permanent, daily basis and be ready to act at any moment,” Frieden said in a telephone interview today in Luxembourg. “The political decisions in the case of Spain and also of Greece have been taken to be able to act fast. That’s what is important especially now in the summer months.” Spain’s benchmark 10-year bond yield reached a euro-era record of 7.625 percent today as the nation’s borrowing costs rose at an auction amid concerns its banks’ and regions’ debts will force the government to seek a sovereign bailout. Spanish Economy Minister Luis de Guindos is holding crisis talks in Berlin with German counterpart Wolfgang Schaeuble.A full-blown Spanish bailout can be averted if the European Central Bank starts buying the nation’s bonds in large quantities, the head of the Organization for Economic Cooperation and Development said. Europe should deploy all of its instruments “but mostly the ECB,” OECD Secretary General Angel Gurria said in a Bloomberg Television interview in London. “There is the bazooka.”

Spain to struggle to fund 2012 debt crunch  (Reuters.com)

Regional debts, soaring borrowing costs, a higher deficit and souring market sentiment are all making it nearly impossible for Spain to find 50 billion euros in funding it needs by year end without external aid. Madrid will need 10 billion euros more than expected at the start of the year to fund a softer deficit target agreed with the European Union, and 12 billion extra euros for a new liquidity line to highly indebted autonomous regions.That raises the total funding requirements for the rest of the year to around 50 billion, squandering the advantage Spain had gained in the first half of the year by “frontloading” its funding at a time when the European Central Bank was giving banks cheap money to buy government debt.Spanish officials had boasted that the second half of the year would not be difficult after they raised 59 billion worth of their expected 86 billion euro funding requirement in the first half of the year.But the benefit has evaporated now that the Treasury needs to find extra funding to meet a deficit target revised to 6.3 percent of Gross Domestic Product from 5.3 percent, and provide the new cash for its rescue fund for the regions.

Spain feels debt heat, Greece struggling to meet bailout terms (The Economic Times)

Spain paid the second highest yield on short-term debt since the birth of the euro at an auction on Tuesday, and EU officials said Greece had little hope of meeting the terms of its bailout, casting fresh doubt on its future in the euro zone. Spain’s increasingly desperate struggle to put its finances right has seen its borrowing costs soar to levels that are not manageable indefinitely, reflecting a growing belief that it will need a sovereign bailout the euro zone can barely afford.It has become the recent focus for investors, but Greece – where the sovereign debt crisis began – remains a powder keg. If Athens were to default or exit the euro zone, the knock-on effects could push Spain and even Italy over the edge.With inspectors from the EU, European Central Bank and International Monetary Fund returning to Greece to decide whether to keep it hooked up to a 130-billion-euro lifeline or let it go bust, three EU officials said they were likely to conclude Athens cannot repay what it owes, making a further debt restructuring necessary. This time, the European Central Bank and euro zone governments would likely have to take a hit on some of the estimated 200 billion euros ($240 billion) of Greek government debt they own if Athens is to be put back on a sustainable footing.