The Spanish stock market posted its biggest loss for the year on Wednesday as the latest figures showed bank defaults pose a growing threat to the balance sheets of the country’s lenders.
After a fleeting recovery the previous session, the blue-chip Ibex 35 closed down 3.99 percent at 7,079.20, around the levels of March 2009. Losses in the rest of the European bourses were of a much more modest nature. The DAX in Frankfurt shed 1.01 percent, while the CAC 40 in Paris lost 1.59 percent. Spanish government bonds fared better, with the country risk premium easing three basis points to 410 basis points. Among the banks, Santander shed 4.03 percent. Repsol continued to lose ground after the expropriation of YPF, which Sacyr, which has a stake in the oil company, fell 10.36 percent.
Investors were also unnerved by comments by the head of the Bundesbank, Jens Weidmann, who said Spain should not look to the ECB to help it by buying its bonds.
In an interview with Reuters, Weidmann said no ECB policymakers favored using the bank’s bond-buying plan to target specific interest rates on sovereign bonds, and ECB board member Benoît Coeuré was simply stating a fact by saying last week that the program still existed.
Weidmann, who is head of Germany’s Bundesbank, also said he saw no reason to discuss a third Long Term Refinancing Operation (LTRO), the funding instrument with which the ECB has pumped over 1 trillion euros into financial markets since late last year.
The yield on the Spanish benchmark 10-year bond hovering around the 6-percent mark. Greece, Ireland and Portugal were forced to ask for bailouts after the yields on their debt moved above the critical 7-percent mark, which is deemed to be unsustainable.
“We shouldn’t always proclaim the end of the world if a country's long-term interest rates temporarily go above 6 percent,” he said. “That is also a spur for policymakers in the countries concerned to do their homework and to win back [market] confidence through the pursuit of the reform path.”