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Spanish yields pass 7.5% on regional bailout fears

 

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Spain’s cost of borrowing has soared to a new euro-era high after fears rose that other regions will follow Valencia’s request to Madrid for a bailout.

Bloomberg shows the 10-year Spanish government generic bond as yielding 7.525 per cent at 0956 BST this morning – up from the 7.27 per cent it ended last week on and about the level other eurozone members were forced to seek out a bailout from the international community.

On Friday, Valencia’s regional government said it would tap the recently-created emergency-loan fund to help cope with its heavy debt. The regional administration said: “Like other regions, Valencia is suffering the consequences of liquidity restrictions in markets as a result of the economic crisis.”

Fears have risen that other regions will seek support from the fund -with attention settling on Catalonia and Murcia. This would add to the financial pressure on the central government and increase the chances of it having to seek a full-scale bailout.

The Bank of Spain added to the nation’s worries this morning by estimating that its recession deepened over the last quarter, from a 0.3 per cent contraction in the first quarter to 0.4 per cent in the second. This means the economy would be 1 per cent smaller than it was a year earlier.

Meanwhile, the generic yield on 10-year gilts fell stood at 1.436 per cent at 0957BST, as the UK’s safe haven status attracted investors following the fresh problems of the eurozone.

Markets across Europe have dropped on this morning’s fears, while the euro has fallen to an 11-year low against the yen.

Last week, eurozone finance ministers unanimously agreed to offer up to €100bn in assistance to Spain so it can recapitalise its debt-laden banks. The full size of the package will not be confirmed until an audit of the country’s banks has been completed.

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