The yield on Spain’s 10-year notes rose above the financially and psychologically important 7% level. Most economists believe that if the yield remains above that level, Spain’s borrowing costs will be too onerous for the nation’s government to operate without a bailout.
Spain’s greatest problems have been the indebtedness of some of its large states and the tattered balance sheets of its large banks. Unemployment in Spain is above 25%. The three forces have joined to make Spain’s own sovereign debt unattractive. And the 7% payout needed to borrow money is a sign that capital markets investors demand that level to accept the risk of investment, or that some have gone short Spain’s debt.
Spain’s trouble has been compounded by the lack of cohesion among European leaders about how to handle the region’s banking problem, although a plan has been set to create a bank authority next year. At that point, it may be too late for Spain to take the aid.
According to MarketWatch:
A Eurogroup meeting of finance ministers will gather in Brussels on Monday to discuss measures to combat the sovereign debt crisis that were decided just over a week ago. But yields have crept up again for Spain as investors worry leaders have lost momentum over the measures.
Douglas A. McIntyre