Spanish yields rise as debt fears spread

SPAIN saw yields rise at its latest bond auction yesterday, raising fears that Eurozone debt contagion could spread to a country widely considered too big to bail out.

Madrid sold €3.37bn (£3bn) of ten and 13-year dated bonds, at the top end of its target range on the back of solid demand, but it had to pay 31 basis points more for the cash than at its last equivalent sale in March.

Ten-year yields reached 5.47 per cent versus 5.16 per cent in March.

Spanish yields continue to creep up in defiance of widespread claims that Madrid is a bulwark against any further spread of the debt panic gripping the Eurozone. “Spain spreads are widening and wobbling,” said Newedge’s Bill Blain. “We all know that if Spain falls… game over.”

Meanwhile, the growing expectation of a Greek default drove up the cost of insuring Athens’ debt still further to over 1740.7 basis points, up 144.1 points from yesterday’s close.

Greek two-year benchmark bonds also reached a record yield of 21.114 per cent yesterday, as some traders said that markets were awash with rumours that European officials might try to use the Easter break to organise a restructuring of Greece’s finances, despite EU claims that any default would have to be unilateral.

Others have pointed out that since Athens issued most of its debt, it can default unilaterally if it chooses. The euro reacted well to the Spanish sales, rising 1.2 per cent against the dollar.