Fears push up Spanish borrowing costs

Fears push up Spanish borrowing costs

Spain has paid sharply higher interest rates to raise €2.5bn in a medium-term debt auction, reflecting fears it will be caught up in the fallout of the Greek crisis.

Meanwhile a recently nationalised Spanish bank’s shares plummeted after a newspaper said depositors were rushing to withdraw money.

Investors worry that a messy Greek exit from the currency bloc could destabilise Spain’s financial sector. The concern is that the banking sector might not be able to meet tough new provisioning requirements and require bailouts if concerns about their stability worsen.

The government, meanwhile, risks needing a bailout itself if it needs to rescue the banks. It is already struggling to meet deficit-reduction targets during a painful recession, with austerity measures draining money from the economy.

Prime Minister Mariano Rajoy has warned that the country risked being frozen out of capital markets because of the sky-high interest rates, or yields, it would have to pay to maintain its debt.

The Treasury today sold three kinds of bonds, two maturing in 2015 and one in 2016. For the three-year note, the only one which was comparable to previous sales, Spain’s borrowing rate – or yield – rose to 4.87%, from 4.04% in a similar auction on May 3.

On the secondary market, where issued bonds are traded freely, the interest rate on Spanish 10-year bonds stood at a worryingly high 6.34%. It has risen sharply from below 5% in March and is edging toward the 7% mark that is considered unsustainable in the longer term.

Greece, Ireland and Portugal sought bailouts when their 10-year bond yields remained stuck above that level.

The spread, or difference, between Spain’s 10-year debt yield and that of the safe-haven German bonds was 4.85 percentage points. Investor appetite in the auction was nevertheless strong, with demand covering the amount on offer between two and 4.5 times.

Tensions remained high in the markets, where shares in Bankia, the recently nationalised bank, plunged by more than 20% on a newspaper report that customers have withdrawn more than €1bn since the state took it over last week.

The shares plunged 22% to €1.35 by the afternoon after falling as much as 27% in the morning. That helped push the broader Ibex 35 stock index down 2%. Other banks also saw their share price fall with Banco Santander SA down 3%.

The newspaper El Mundo reported it had obtained access to data presented at a Bankia board meeting yesterday which said depositors had withdrawn one billion euro since last Wednesday, the day the nationalisation was announced. The bank is Spain’s fourth-largest and is heavily exposed to country’s collapsed property market, with €32bn in assets deemed problematic.

More in this Section

Amazon in talks for new 750-worker Dublin office despite virusAmazon in talks for new 750-worker Dublin office despite virus

EPA orders Merck to address persistent problem of bad odours from east Cork plantEPA orders Merck to address persistent problem of bad odours from east Cork plant

Online shopping and level of savings reach record levels in Ireland, amid lockdownOnline shopping and level of savings reach record levels in Ireland, amid lockdown

Belfast International Airport announces voluntary redundancy programmeBelfast International Airport announces voluntary redundancy programme


One word: iconic.90s celebrity power couples who were serious style goals back in the day

Alanis Morissette, celebrating 25 years since Jagged Litle Pill, talks to Ken Lexington on self-medication, love addiction, anxiety, depression and anger as an important lifeforceFor Alanis Morrisette, anger is an energy

Another week, another fiendishly fun test of your arts and showbiz knowledge from Irish Examiner Arts Editor Des O'DriscollScene & Heard: Fun culture quiz

The story of how the Cork-based executive head chef faced her “demons” and turned around her life just before her 30th birthday.This is me: Trisha Lewis transforms her body and mindset

More From The Irish Examiner