Spain and Italy under pressure

SPAIN and Italy faced mounting pressure yesterday as their borrowing costs continued to spiral.

Spain saw its 10-year bond levels surge briefly above the dangerous seven per cent level yesterday, while Italy was forced to pay its highest interest rate in over six months at an auction of ten and five-year debt.

The endebted nations have been pleading for emergency action in a bid to reduce their borrowing costs before they are forced out of the bond market.

Italy yesterday managed to sell €5.42bn in five and 10-year bonds, near the top of its lower-than-average target range, helped by domestic demand.

But 10-year yields rose to 6.19 per cent from 6.03 per cent a month ago, fuelling concern on markets. Meanwhile, Italy’s five-year bonds priced at a rate of 5.84 per cent, compared with 5.66 per cent last month – the highest since a euro-lifetime peak of 6.5 per cent in December.

The possibility of the Eurozone’s bailout funds buying Spanish and Italian bonds to help ease funding costs for Rome and Madrid, was discussed at yesterday’s summit.

“Both the EFSF and the ESM, once it is active, have the capacity to buy bonds in the primary market,” one EU official said.