Spain bond yields jump above 6%- increasing bailout fears

The cost of borrowing for Spain has jumped above 6%- increasing fears of a bailout.Spain bond yields jump above 6%- increasing bailout fearsThe yield on Spain’s 10 year bonds reached 6.1%, ahead of auctions of debt on Tuesday and Thursday that could be increasingly expensive for Spain.

Investors have been worried by data showing Spain’s banks are entirely dependent on emergency ECB loans.

In comparison, the yield on 10 year bonds from Germany- the eurozone’s strongest economy, is only 1.73%.

Spain is suffering from a deep economic slump brought about by a bust in its property and construction markets and over spending by the autonomous regions on health and education.

The rise in Spanish bond yields adds to the evidence of storms returning to the eurozone.

Interest rates of over 6% are not affordable if sustained indefinitely, though Spain is still below the 7% threshold that has sometimes been seen as triggering the need for a bailout.

There are also worries that the government might face a large bill to prop up the country’s banks, which made heavy losses on loans to property buyers.

The Bank of Spain said recently that the county’s economy contracted in the first quarter of the year – but it did not say by how much. The economy shrank by 0.3% in the three months to December, so this additional contraction implies that Spain’s economy is in recession.

On Friday, the Bank of Spain – the central bank – said its net lending to its banks in March had risen to 228 billion euros (£188 billion), up from “only” 152 billion euros a month earlier.

The big jump was mainly due to a second auction of three year emergency loans carried out by the European Central Bank, which has given 1 trillion euros to banks since December.

This money was intended to be lent by the ECB to national central banks, which is turn lent to commercial banks who would buy their country’s debts and bring borrowing costs down.

But these loans are creating their own financial headaches- as Spanish banks are now sitting on rising loses as spanish government debts fall.

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