Spanish 10-Year Yields Exceed 7% on Weak Demand

Fears that Spain may be forced to seek more help for its financial system resurfaced on Thursday after a bond auction saw yields on Spain's 10-year sovereign bond once again climb above 7 percent, a level seen by economists as unsustainable .

At a series of auctions which placed 2.98 billion euros ($3.67 billion) Spain sold 1.36 billion euro of two-year notes at a yield of 5.204 percent, up from a similar placement at 4.335 percent on June 7, as yields on five-year securities climbed to 6.459 percent from 6.072 percent on June 21. The benchmark 10-year bond yield jumped to 7.03 percent from 6.962 percent.

The auctions featured weak demand for Spanish debt, with demand for the two-year notes only 1.9 times the volume placed, down from 4.26 times in June, and demand for the five-year notes only 2.06 times the volume placed, compared with 3.44 in June, Spain's reasury said.

The Spanish economy is under heavy pressure and Madrid has already asked the EU to provide up to 100 billion euros in loans to recapitalize its banking sector, severely affected by growing bad debts due to loans to the country's bloated real estate market.

The first tranche of 30 billion euros to support Spanish banks may be granted in the second half of July, Euro Group President Jean-Claude Juncker said on July 9. The repayment period for separate tranches will not exceed 15 years, while an average loan period will amount to 12.5 years.

The Spanish government approved the country's state budget in late June, under which it expected to cut budget deficit to 5.3 percent of gross domestic product level in 2012 from 8.9 percent of GDP last year by cutting ministries' budgets by 16.9 percent, raising profit taxes and excise duties on tobacco products.

[Source: Ria Novosti, Moscow, 19Jul12]

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