The skepticism about Spain from international capital markets investors has returned. The yield on 10-year notes rose to 6.95% post auction today. The yield has risen again for several reasons. Spain’s central government reported that the nation’s bank and real estate problems were not being resolved, but are getting worse. Germany said that Spain will be liable for the problems of its own banks. And thousands of protestors took to the streets in protest of austerity measures, which have only increased as the nation tries to gain favor with its rescuers.
While Spain has demonstrated that it can knuckle under to requests for more cost cuts, the market has come to believe that its crippled economy cannot yield more treasury receipts, and therefore its deficits will rise. That, more that the balance of factors, will keep yields high.
Douglas A. McIntyre