Spanish bond rates switch to record above 7.0%

The rate which Spain must pay to borrow for 10 years switched direction and rose to a record above 7.0 percent in morning trading on Monday after dipping in response to the Greek election. The sudden rise was a signal that immediate dangers of debt contagion within the eurozone remain despite the Greek vote in favour of rescue terms. The Spanish yield rose to 7.061 percent from 6.838 percent late on Friday. The gap with the yield on German 10-year bonds, the eurozone benchmark, widened to a record 5.56 percentage points. The yield on Spanish bonds traded on the secondary market had fallen sharply in early trading, in a brief respite brought about by the result of the Greek election in favour of parties supporting rescue conditions. "First thing, the rates were helped by the results in Greece, which could have been more unclear," said bond strategist at BNP Paribas, Patrick Jacq. Jacq said: "The fundamental situation remains the same. The Spanish bond market continues to get worse, in terms of the yields, of the spread (with German rates) and the lack of liquidity." This meant that investors were highly reluctant to trade in Spanish debt, he said. Similar conditions in November 2011 had pushed the European Central Bank into intervening by buying Spanish bonds on the secondary market, he added.