Spanish borrowing costs rise after polls

21st November 2011, Comments 0 comments

Spanish government borrowing costs rose on Monday as the financial markets drew no new confidence from a sweeping election win for a right-wing government committed to radical budget cuts so as to balance the public finances.

The yield or rate of return earned by holders of benchmark Spanish 10-year government bonds rose to 6.500 percent in late morning trading from 6.345 percent at the close on Friday.

The spread or gap with the borrowing rate for Germany, the eurozone benchmark, widened to 4.58 percentage points from 4.33 percentage points Friday, as investors favoured the safety of German debt.

Conservative leader Mariano Rajoy's Popular Party won by its biggest margin ever in Sunday's election by voters desperate for someone to do something about Spain's punishing 21.5-percent jobless rate .

Spanish stocks slumped more than 2.0 percent, with the markets realising that the new government has a mountain to climb if it is to stabilise the country's strained public finances and ensure it does not get sucked down into the eurozone debt quagmire.

Rajoy's "victory was largely expected and so the news offers no real lead for the markets. Now, it is up to the new government to show it can really act," said Nordine Naam, bond strategist at French investment bank Natixis.

"The new government has said it would do everything possible to tackle the crisis but that there would be no miracles, given the difficult economic situation," Saxo Banque analysts said in a note.

© 2011 AFP

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