Member Article

Spanish bond yields rise to record euro-area high

Markets were called to open roughly flat this morning as investors digested the whipsaw reaction to the Spanish bailout agreed over the weekend. Whilst many feel that the Spanish Prime Minister has been rather savvy in securing funding without the loss of sovereignty (fiscal oversight), one interesting implication is the reaction this bailout will have in those other countries that have had to accept draconian fiscal demands in return for assistance. Of particular interest is how this will go down in Greece, and whether support for the bailout there will wane coming up to their election on Sunday, given the concessions they have had to make. Focus also began to shift towards Italy, with its rising bond yields indicative of question marks appearing over its health and its ability to contribute to bailout funds for other countries. Spanish 10 year debt hit a euro-era high of more than 6.8%, before falling back, reflecting an increased risk premium on the country.

Economically, UK manufacturing production fell 0.7% (month on month) in April, increasing concerns that the UK may be in line for a third consecutive quarterly contraction in GDP.

With the major European indices trading marginally into positive territory this morning, they established a pretty tight trading range seeming unable to establish a direction. A ratings downgrade of 18 Spanish banks by Fitch did however cause the FTSE 100 to dip into the red, which followed the downgrade of the Spanish sovereign credit rating from A- to BBB on the 7thJune. Markets did however rebound from their lows of the day, to finish around 0.75% higher at 5473 in the case of the FTSE 100. The French CAC and the Spanish IBEX limped into positive territory, with the German DAX more comfortably higher. With Italy in the spotlight, the FTSE MIB finished lower by around 0.7%.

This was posted in Bdaily's Members' News section by James .