Spain’s Cost of Borrowing Rises Above 6%

Spain’s cost of borrowing has been increasing steadily over the past four months. Today, the yield on Spain’s benchmark 10-year bonds has reached 6.1 percent, again bringing attention to the prospect of a bailout.

The yield on 10-year bonds from Germany, in comparison, is at 1.73 percent.

Spain’s economy shrank by 0.3 percent in the last quarter of 2011. The Minister of Economy said that in the first three months of 2012 the economy has probably contracted as much as in the last quarter of 2011.This consecutive quarter of additional contraction implies that Spain’s economy is in recession.

The nation’s unemployment is the highest in Europe, with a record unemployment rate among young people under-25 years old, at 50 percent.

The substantial concerns among investors are related to the recent data on Spanish banks borrowing of emergency ECB loans. The Bank’s of Spain (responsible for distributing the ECB loans) net lending to domestic banks in March had risen to 228 billion euros, up from 152 billion euros a month earlier. While this money was intended for commercial banks to spend on local debts and bring borrowing costs down, investors are concerned as to what extent the Spanish banks are relying on cheap ECB loans to stay afloat.

Source: BBC

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.