Lingering Questions on Spanish Bailout

Arthi Gupta
18 Sep, 2012
New York City

The European indexes edged lower as investors refocus on the details of the possible Spanish bailout as bad bank loans rose in the country. Spain raised

[R]3:00 PM Frankfurt – The European indexes edged lower as investors refocus on the details of the possible Spanish bailout as bad bank loans rose in the country. Spain raised €4.5 billion in an auction today at lower yields.[/R]

European indexes traded lower as traders refocused on the widening crisis in Spain and the government is said to inch closer to seek a larger bailout.

Luc Coene, the ECB Governing Council Member feels that rising bond yields may force Spain to formally ask for a bailout.

Separately, the country’s Deputy Prime Minister Soraya Saenz said in an interview today that the Spanish government is still studying the conditions of a possible EU bailout.

Only, last week people protested in Madrid and Lisbon as austerity conditions demanded by the bailout begin to take bite and workers demand an alternative way to repair the financial damage to the nation.

German economic confidence improved in September but Swiss outlook was lowered and auto sales dived in the wider EU region of 27 nations.

In Paris trading, the CAC-40 Index declined 23.42 or 0.7% to 3,530.02 and in Frankfurt the DAX Index edged lower 50.98 or 0.7% to 7,352.60.

The yields on Spain’s benchmark 10-year dropped four to 5.93%. Italian 10-year yields fell four basis points to 5.07%.

Spanish Bond Auction

Spain raised €4.5 billion in an auction of 12- and 18-month T-bills.

The Treasury sold €3.5 billion in 12-month bills at an average yield of 2.835% compared with 3.07% in the last auction on August 21. The bid-to-cover ratio, which reflects investor’s demand rose to 2.03 from 1.91.

The country also sold €1.02 billion in 18-month bills at an average yield of 3.072% compared to an average yield of 3.335% in the previous auction on August 21. Demand was 3.56 times the offer, smaller than 3.98 times last month.

Spanish bank bad loans rose to a record high of 9.86% of total lending in July, the Bank of Spain said today.