Spain Sees Borrowing Costs Rise in Latest Bond Sale

http://www.nytimes.com/2010/05/07...7euro.html


PARIS — Spain’s borrowing costs were pushed higher in a bond sale Thursday, making it the latest European country to be hit by the tremors from the Greek debt crisis. The euro fell, while stocks were mixed in Europe.

Ahead of a summit meeting on the crisis Friday in Brussels, the leaders of Germany and France again sought to reaffirm their support for Greece and the euro — and went on the offensive against credit rating agencies, which some in Europe have accused of acting irresponsibly.

President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany called on the European Commission to “examine explicitly” how sovereign debt is rated, how rate change decisions are communicated and the role of the agencies “in the amplification of the crises and their impact on financial stability.”

The Spanish Treasury said that it sold 2.3 billion euros, or almost $3 billion, of five-year bonds at an average yield of 3.58 percent. That is well above the rate in March, when it sold 4.5 billion euros of the bonds at just over 2.8 percent, but still far less than what investors are demanding to buy Greek bonds.

The Spanish bonds met with healthy demand, with investors seeking 2.35 times more securities than were offered.

The Madrid benchmark IBEX 35 index was flat in afternoon trading, while the Euro Stoxx 50 index, a yardstick for euro-zone blue chips, fell 0.7 percent and the FTSE 100 index in London fell 0.3 percent.

Trading in Standard & Poor’s 500 index futures indicated Wall Street stocks would open slightly lower. On Wednesday, the S&P 500 fell 0.7 percent.

The euro continued to slip, falling to $1.2734 from $1.2814 late Wednesday. And the yield on the Spanish government’s 10-year bond rose 10 basis points to 4.3 percent, while the spread, or difference, with comparable German debt rose 6 basis points to 1.42 percentage points. The spread shows the increasing premium investors demand to hold Spain’s debt compared with safer German bonds.

Earlier in Asia, the Tokyo benchmark Nikkei 225 stock average fell 3.3 percent as Japanese markets reopened after a three-day holiday. The Hang Seng in Hong Kong fell 1 percent, and in Sydney the S&P/ASX 200 index fell 2.2 percent.

As bonds and equities have entered a new period of turmoil in recent weeks, the market for initial public offerings has also begun to freeze up. In the latest case, Ron Burkle’s Americold Realty Trust said Thursday that it was postponing its $660 million IPO. Earlier Thursday, Swire Properties, a major Hong Kong landlord, cited a “deterioration in market conditions” as it pulled an initial share sale that had been meant to raise as much as $2.7 billion.

One exception was Hepalink Pharmaceutical, a Chinese drug maker, which soared 18 percent in its Shenzen market debut Thursday.

Spain has been hard hit by a collapse of the housing market, and the unemployment rate has risen to 20 percent as it struggles to pull out of a long recession. Standard & Poor’s last week cut Spain’s credit rating from AA+ to AA, still investment grade, and José Luis Rodríguez Zapatero, the center-left prime minister, is under pressure to act as Greece’s problems roil markets.

“We’re pretty comfortable with the demand,” a Treasury official in Madrid said of the latest bond sale. “It shows investors are still interested.”

“The price reflects the turbulence in the markets,” the official, who asked not to be identified because of government policy, said. “But we were expecting that.”

Greek 10-year bonds continued to rise, tracking to 10.6 percent — higher than before the European Union and International Monetary Fund announced Sunday a plan to help Athens sort out its problems with up to 110 billion euros in financial aid.

In their joint letter, issued Thursday, Mr. Sarkozy and Ms. Merkel expressed solidarity with Greece, praising Prime Minister George Papandreou’s government for its “courageous” measures, saying they “totally support its determination, and we are convinced that will permit Greece to face its economic and budgetary challenges and to regain the confidence of the markets.”

“The euro is a major accomplishment of the European Union,” they said in the letter, which was addressed to Herman Van Rompuy, president of the European Council, and José Manuel Barroso, president of the European Commission,

“It has greatly benefited all the members of the euro zone. We are fully committed to preserving the solidity, stability and unity of the euro zone.”




The PIIGS are collapsing. G is dead, S is heading that way fast. Between Arizona, California, New York, and New Jersey, I wonder who will be next to join them.

One by one, the public sector unions [euronews.net] seek to drive their countries to the brink.

just the next domino....the rest of the PIIGS will soon follow...and if we dont get off Obama's path of $1T annual deficits for the next 10 years, we will be next...it wont be today or tomorrow, but in 10 years' time we will get there too.

I'd want much more than 3.58% if I were going to lend money to Spain.

If the downfall of the PIIGS isn't a portent of our fate should we continue to borrow & spend, I don't know what is.

Moody's warns it may downgrade Spain [cnn.com]

Quote : Moody's warned Wednesday it may downgrade Spain's credit rating, citing its heavy refinancing needs in coming months, the weakening state of its small banks and the debts run up by local governments.

Quote : The move comes as investors continue to edge away from the bonds issued by weaker European governments such as Spain and Portugal on fears that the euro zone will break apart. Spain sold 2.5 billion euros in bonds on Tuesday, but had to pay a full percentage point more than it did a month ago for the privilege. Rising borrowing costs threaten to strangle any chance of a recovery in an economy already dazed by 20% unemployment in the wake of a housing and construction boom that was perhaps, propotionally, three times the size of the one in the United States. Moody's statement Wednesday comes just three months after it stripped Spain of its gold-plated triple-A rating, citing the weak economy and problems at banks. The rating agency this week raised its estimate of Spanish banking sector losses by some 70%. Meanwhile, the debt incurred during the bubble continues to loom over an economy that has yet to find a new growth strategy. The Intenational Monetary Fund said in July that Spain will need to sell some $300 billion in debt in 2011 simply to roll over and repay existing commitments as they come due. The question now is how soon Spain may be forced to seek a bailout from the IMF and the European Union. European ministers are meeting this week to discuss the fiscal crisis sweeping the Continent and how they might respond.