The Corner

Nerves

Via the FT:

Spanish bond yields jumped over 6 per cent on Wednesday amid fears that uncertainty surrounding Greece was spreading to Madrid. The yield on Spain’s 10-year bond, which has an inverse relationship with prices, jumped to 6.04 per cent, up 20 basis points….Strategists expect the Greeks will be forced to call another parliamentary election on June 17 after the weekend poll failed to deliver a majority government.

Italian and French 10-year yields were up, although Greek yields fell. Italy’s rose to 5.56 per cent, up 11bp and France’s rose to 2.85 per cent, up 4bp. Greek 10-year yields fell to 22.97 per cent, a 15bp drop after jumping more than 200 basis points on Monday and Tuesday. The perceived threat that Greece could exit the eurozone amid a disorderly default was weighing heavily on sentiment in Spain, where problems over its banking system have been highlighted by the troubles at Bankia, the country’s third-largest bank. The Spanish government is planning to bail out the bank.

Market participants warn that Spain itself could be the next country in need of a bail-out following Greece, Portugal and Ireland, should its yields continue rising. Many strategists consider 10-year yields above 7 per cent as an unsustainable rate of interest for sovereign issuers. Indeed, this level was considered the point when markets finally gave up on the three small peripherals, leaving them no choice but to request a bail-out…

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