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Spanish Bond Yields Rise

April 6th, 2012

 

The yield on Spanish government 10-year bonds has risen another 13 basis points, now standing at just over 5.8 percent.  This is in line with the deteriorating economic and fiscal situation in Spain. Madrid has recently enacted draconian government spending cuts. However, the conundrum is this; previous government spending was unsustainable, but the most recent cuts are a massive fiscal drag, which will also exacerbate the government deficit in its annual spending. Investors know this, which is why Spanish bond yields are rising.

With the highest official unemployment rate in the Eurozone (23 percent)and the economy continuing to contract, there is increasing concern that the center of gravity in the Eurozone sovereign debt crisis has migrated from Greece to Spain. In the meantime, the European Central Bank continues its policy of stealthily monetizing debt throughout the Eurozone through its printing press.

                 

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