By Simon Miller
Spanish 10-year bond yield hit a euro-era high today as attention swung away from Greek elections to the state of Spain's economy.
As cautious optimism over the election results turned to pessimism over the wider state of the eurozone, Spain's 10-year bond yield hit a euro-era high of 7.225%, a 0.31 percentage point rise which puts it firmly in the 7% bracket where Ireland, Portugal and Greece sought a rescue package.
With a €100bn aid-package for banks already in the pipeline, concerns are mounting over the Spanish government's ability to fund itself. Although able to buy at the higher rate for a limited time, it will be soon forced to turn to either the European Central Bank and the International Monetary Fund for assistance but at €1.1trn, its economy is that of Portugal, Greece, and Ireland's combined.
Spain is to sell €2bn to €3bn of 12 to 18-month bonds on Tuesday (19.06.2012) and €1bn to €2bn of unspecified bonds on Thursday (21.06.2012).
Spain's central bank announced Monday that bad debts held by the country's banks rose to a new 18-year high in April, indicating more companies and individuals are failing to make payments on time. The amount stood at €152.7bn, or 8.72% of the loans held by Spanish banks up from 8.37% in March.
Earlier today, Moody's credit outlook warned that Spanish banks' issuance of more than €16bn of covered bonds to meet requirements for ECB funding had created a credit negative by diminishing the over-collateralisation enjoyed by covered bondholders as it dilutes their protection.