SPANISH Prime Minister Mariano Rajoy was yesterday forced to call an emergency meeting with cabinet colleagues as the government’s borrowing costs touched the dreaded seven per cent mark, a new euro-era high.
Rajoy convened with his senior economic and finance ministers in a bid to thrash out ways of tackling the country’s escalating debt crisis.
Yields on 10-year government bonds neared seven per cent during trading yesterday, a level that some investors fear could spark the beginning of a need for a large scale bailout.
“It’s psychological though, not actually a problematic level,” said Holger Schmieding, chief economist of Berenberg Bank. “If borrowing costs were fixed at seven per cent for a year, or even more, Spain would be fine. But it is the lack of trust which sends it higher and higher and causes a death spiral.”
At close, yields printed 6.91 per cent, a rise of 16 basis points during the day.
Markets opened to news from the previous night that leading credit rating agency Moody’s had given the thumbs down to the Spain’s banking bailout, arguing that it would make the situation worse by increasing the country’s debt burden.
Moody’s rating slipped three notches to the near junk rating of Baa3, adding that it could cut the level even further within the coming three months.
Despite yields continuing their rise, the spread with German yields did not widen further, according to Kathleen Brooks from Forex.com.
“This suggests that the markets expect Germany to do something like guarantee European debt – hence its credit rating is deteriorating,” Brooks explained.