German-Spanish borrowing rate gap widens to record

18th November 2011, Comments 0 comments

The difference in the cost of borrowing for 10 years between Spanish and German rates widened on Friday to a record of more than 500 basis points or 5.0 percentage points in initial trading.

The difference or spread widened to 503.5 basis points because the rate on Spanish debt bonds rose and the rate on benchmark German bonds fell.

Later the yield on traded 10-year Spanish bonds was showing a rise to 6.842 percent from 6.487 percent at the close on Thursday and the yield on the German 10-year Bund fell to 1.856 percent from 1.892 percent.

This had the effect that the opening spread was narrowed to just below 500 basis points to 498.6 points.

Spanish borrowing rates are at levels considered to be at the limit of what Spain can afford to fund its public sector and debt.

The wide difference with the eurozone benchmark in Germany is a sign of acute tensions on the eurozone bond market which is undermining stock markets because of the threat of debt contagion, notably via the balance sheets of banks.

© 2011 AFP

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