Wednesday, September 26, 2012

Bonds: The Spanish problems pours in

The yield spread between South and North Europe widened considerably Wednesday, when there were major decline in interest rates in Northern Europe and significant increases in Southern Europe and especially Spain.

The situation in Spain are a source of tremendous nervousness in the market these days because they have not yet applied for official help to solve the debt crisis, while the Domestic problems are getting worse and worse - illustrated by the violent demonstrations against savings and reforms in Madrid on Tuesday.

It points to great uncertainty towards Thursday's presentation of the national budget for 2013, which will probably be characterized by comprehensive structural reforms in an attempt to correct the turbulence and to meet EU requirements, if or when Spain officially chooses to request help from the permanent bailout fund, the ESM.

The problems of Spain may even have been worsen by a joint letter from the German, Dutch and Finnish finance ministers, which according to news agency Direkt places new demands on the permanent European rescue fund, the ESM, which will be responsible for the 100 billion euro huge rescue package for the Spanish banks. Requirements that can stop the bailout.

This, in conjunction with the Spanish central bank reports that gross domestic product, GDP continues to fall with "considerable speed" in the third quarter, helped to push interest rates up.

There is a constant influx of bad news. The finance ministers' letter raises doubt whether Spain will be able to remove the burden it has placed on itself with the bank bailout.

According to a news agency, the Spanish Prime Minister Mariano Rajoy inflated further fuel to the fire by telling the Wall Street Journal that Spain "with 100 percent certainty" will seek help from the EU, if the country's borrowing costs remain high for an extended period.

No comments:

Post a Comment