Thursday, May 17, 2012

Spain returns to recession amid bank crisis....If you ask the Public they will say they never left Recession

(Reuters) - Spain's borrowing costs shot up at a bond auction on Thursday, after economic data confirmed the country is back in recession and reports of an outflow of deposits from nationalized Bankia hammered its share price.

The Spanish Treasury had to pay around 5 percent to attract buyers of three- and four-year bonds. The longer-dated paper sold with a yield of 5.106 percent, way above the 3.374 percent the last time it was auctioned.

"This ... fits the pattern of recent sales, with the Spanish treasury successfully getting its supply away but at ever-higher yields," said Richard McGuire, rate strategist at Rabobank in London. "This unfavorable trend looks set to remain firmly in place ... Ultimately, this ratcheting up of yields will likely require some form of outside intervention."

Spanish Prime Minister Mariano Rajoy said on Wednesday his government, struggling to reduce its budget deficit, could soon find it difficult to fund itself affordably on the bond market unless the pressure eases.

On Thursday his finance minister, Cristobal Montoro, met finance chiefs from all of Spain's 17 devolved regions, most of which missed their deficit targets last year, to review their budgets which are crucial in the drive to lower public debt. Read More