The government of Spain received some good news. The country raised $3.6 billion in the capital markets, and rates fell sharply in the process. The yield on 12-month bills had an average interest rate of 3.9%, compared to 5.07% in the auction on June 19. Markets may believe that Spain is very close to a huge bailout that could be well over $100 billion, much of which will go directly to its hobbled banks.
Rating agencies have not been kind to Spain recently, although the market has shrugged that off for now. Spain’s sovereign paper, the bonds of many of its states, and its major banks have all been downgraded in the past two weeks. Spain has delayed by a year the point at which it will reach its critical budget reduction goals. And unemployment remains above 24%. The markets have forgotten about much of that, at least for a day.
Douglas A. McIntyre
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