Spanish Bond Yields Soar As Investors Fear Hard Default By Greece

Published: Friday, 18 May 2012 09:00 BST - Written by Frank Davies

STORY LINK Spanish Bond Yields Soar As Investors Fear Hard Default By Greece

In global bond markets and in Europe’s debating chambers alike, the discord continues. Yesterday’s session saw the yields which debt-addled Iberian giant Spain pays on its government bills spiral to their highest levels for some time. The interest rate which the country is paying on its bonds with a maturity date of January 2015 jumped from a slightly steep 2.89% last month to a distinctly problematic 4.373% at yesterday’s auction. Market participants who fear the worse for Greece and the knock-on effect which a default by the Hellenic state would have on the Spanish retail banking sector, appeared to be voting with their feet.

Meanwhile, France’s Finance Minister, Pierre Moscovici, has not taken long to hit his stride following his appointment by the country’s newly-elected President Francois Hollande. Moscovici stated yesterday that his government will not be signing up to the EU Fiscal Pact which imposes stringent spending controls on its signatories. The announcement is likely to raise the heckles of German policy-makers who were largely responsible for forging and promoting the agreement. This is the last thing the euro needed at a time when its very existence has been brought into question due to Greece’s woes.

Elsewhere, UK Prime Minister David Cameron issued a doom-laden public statement yesterday, warning of the effects that a ‘hard default’ by Greece would wreak on Britain’s already fragile economy. Up until this point, the Pound has benefitted from the eurozone’s debt problems, with institutional investors viewing the UK as a safe haven, low-yielding alternative to mainland Europe. However, with Britain’s leader explicitly linking the future economic prospects of his nation to those of mainland Europe, many markets participants will now feel unwilling to hold either Sterling or euro-denominated assets. This hurt the Pound hard during yesterday’s session. By the European close, Sterling was the worst-performing of all of the sixteen most-actively traded currencies on the day.

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