Spanish debt heads to crisis levels

Spanish stocks plunged to three-year lows and the economy minister said the country had probably tipped back into recession for the second time since 2009.

“We’re back in full crisis mode,” Rabobank strategist Lyn Graham-Taylor said.

“It is looking more and more likely that Spain is going to have some form of a bailout.”

Mixed signals from the European Central Bank (ECB) over its willingness to help the market by restarting a special bond buying programme and news Spanish banks have been heavy borrowers of cheap ECB funds also undermined confidence.

Spanish 10-year yields rose 11 basis points to 6.10 per cent. That is short of euro-era highs of just under 7 per cent reached in November but above the psychologically important 6 per cent level.

The rise typically accelerates after 6 per cent, putting yields on a course for 7 per cent beyond which debt costs are seen as unsustainable. The cost of insuring Spanish debt against default also hit a record high at 522 basis points, meaning it costs $522,000 a year to buy $10m of protection.

Appetite for the country’s debt will face further scrutiny this week when it auctions two and 10-year bonds on Thursday.

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