Spain carnage reveals rescue fund fig leaf [View all]

[marmar]

FRANKFURT (MarketWatch) — Empty-handed European policy makers may have little choice but to turn to a reluctant European Central Bank to tame fears that Spain, the euro zone’s fourth-largest economy, may soon require a full-fledged sovereign bailout after borrowing costs soared Monday to crisis levels, strategists said.

“The pressure will be growing on the ECB to do something,” said Piet Lammens, fixed-income strategist at KBC Bank in Brussels, while acknowledging that the central bank remains deeply reluctant to head down that path again.

The yield on Spain’s 10-year government bond jumped a quarter of a percentage point to 7.44%, setting a new euro-era high after pushing well above the 7% level generally viewed as unsustainable over the long run in terms of borrowing costs. Yields rise as bond prices fall.

“The rise in the 10-year yield well beyond 7% carries a very distinct reminder of events in Greece in April 2010, Ireland in October 2010 and Portugal in February 2011,” said Simon Derrick, senior currency strategist at Bank of New York Mellon in London. “In each case a decisive move beyond 7% signaled the start of a collapse in investor confidence that, in each case, led to a bailout within weeks.” ...................(more)

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