Spain's risk premium hits record high as markets pile on pressure
Debt crisis worsens prompting PM to postpone summer vacation
For the fifth day in a row, investors pounded Spain in the sovereign debt markets, with the country's risk premium soaring to 400 basis points on Tuesday morning- a new record since the country joined the euro.
Neither the joint EU effort to fight the crisis, nor the 11th-hour deal to raise the US debt ceiling seemed to satisfy the markets, which appear to be pushing Spain and Italy closer to the brink of a bailout.
After the initial surge, the reward demanded by investors to buy Spanish 10-year bonds over the benchmark German bund fell slightly, to close around 386 basis points.
Over in the European stock markets, there were losses all around, which in the case of Spain's blue-chip Ibex 35 resulted in a new annual low of 9,114.90, a retreat of 2.18 percent.
Given this new downturn, Prime Minister José Luis Rodríguez Zapatero decided to delay the start of his summer vacation in Doñana "to follow the evolution of the economic indicators more closely," the Moncloa palace said in a press release.
Widespread doubts over the euro zone's capacity to rescue Spain and/or Italy if necessary (Europe's fourth- and third-largest economies) are at the origin of this rush to sell down Spanish bonds. Experts warn that with current financial instruments, Europe could not come to the rescue. On Tuesday, an EU Commission spokesperson said that rescue plans for these countries were not being considered.
In Portugal's case, the point of no return before turning to Europe for help was a risk premium of 500 basis points, and a 10-year bond yield of seven percent. So far, Spain remains below both figures.