Spanish Bond Yields Spike Above 7%
By Rom Badilla, CFA – Bondsquawk
The yield on Spain’s 10-Year note moved higher today to 7.02%. Today’s 7 basis move brings the troubled economy’s borrowing cost above the seven percent threshold which sets off warning bells across the markets since it is widely seen as an unsustainable level in taming its fiscal situation. Despite EU leaders’ efforts in controlling the crisis after the recent summit, the yield has increased a staggering 76 basis points from last week’s low set on July 3.
While Italy is still below the threshold, borrowing costs for the southern European country continue to increase. The yield on the Italian 10-Year is at 6.05%, which is higher by 3 basis points from Friday and 46 basis points from last week’s nadir.
In response, U.S. Treasuries are rallying again. The yield on the 10-Year is currently trading at 1.525%, a decline of 2 basis points from Friday according to Trade Monster’s Bond Trading Center. The yield on the 30-Year Treasury is lower by 2 basis points as well to 2.643% while the 5-Year is following suit and is currently trading at 0.627%.
3 Comments
Can someone explain simplistically to a non-economist the importance of a 7% threshold and its unsustainability?
Economists make estimates of likely growth of GDP and corresponding tax receipts to pay the debt service. There is a known schedule of maturing debt to be refinanced at these higher levels.
Imagine you own some several apartment buildings and some have to be refinanced soon; make estimates of future rental income and maintenance costs. If some of the new mortgages have interest rates doubling… not good.
@mg
Exactly. What is the importance of 7% versus 6.5%, etc….?