Risk premium back over 350 as markets' debt nerves return

fter ending December on the best note since the euro crisis began two years ago, Spanish sovereign debt was yesterday being pummeled again on the back of renewed concerns over the future of the euro zone. That, and the state rescue of the Valencian region, pushed Spain's risk premium above 350 basis points once again, underperforming Italy.

Meanwhile, the banking sector's losses drove the stock market down sharply. The greatest impact on the Ibex was caused by Santander, whose shares lost 3.5 percent, dragging the blue-chip index down 1.72 percent by the close. It also did not help that the ratings agency Fitch warned on Tuesday that most major Spanish banks were at risk of a downgrade.

"The European debt crisis never really let up," said John Plassard, director of the investment firm Louis Capital, in an interview with Bloomberg. The end-of-the-year respite was not due to real improvements but to the impact of extraordinary liquidity injections into the banking sector by the European Central Bank, he added.

In the case of Spain, Javier Galán, a fund manager for Renta 4, told Reuters that "there is not much news. The Spanish market is performing worse than the European one."

Also on Wednesday, Portugal auctioned off a billion euros in three-month bills at 4.34 percent interest, lower than in its previous December issue (4.87 percent).