Spain’s 10-yr. bond yields shoots past 7%

Markets’ Greece relief short-lived as Spain returns to front burner

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) — The yield on Spain’s 10-year government bond shot to a euro-era high above 7% on Monday, knocking the wind out of stocks in the country, as markets brushed aside Greek election results to refocus on problems for the Iberian nation.

Spanish stocks stumbled XX:SXXP +0.06%  2.3% to 6,561.60, with banking heavyweights Santander SAES:SAN -4.57%  and BBVA SA ES:BBVA -4.21%   BBVA -5.19% tumbling more than 3% apiece. Earlier in the day, official data revealed that bad loans for Spanish banks increased again in April, and Friday the International Monetary Fund said the government would miss its 5.3% deficit-to-GDP target for 2012.

Worries over Spain appeared to overtake the market early in the day, with a rally for European markets on the back of a win for the pro-austerity, pro-euro New Democracy party barely lasting through the first hour of trade.

It was exactly a week ago that the market behaved similarly to news of a Spanish bank bailout, a rally that barely got going before it was taken out by questions over the size, scope and effect of the plan. Doubts over the Spain plan have persisted since, much to the frustration of the government of Mariano Rajoy, which believed the plan would answer questions about the depth of losses for Spanish banks, once and for all.

“By requesting external assistance for the euro zone’s fourth-largest economy, the Rajoy government has pushed Spain, Italy and the bloc as a whole into uncharted waters,” said Nicolas Spiro, managing director of Spiro Sovereign Strategy.

“There’s no saying how severe the fallout from the Spanish bailout will be. What’s clear is that ‘bailout creep’ has already set in even before the loans have been disbursed,” he said in emailed comments. “Politically speaking, the ‘line of credit’ to Spain has already failed.“

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