The decision by the rating agency Moody’s to downgrade the rating of Spain, along with the uncertainties over the banking sector rescue, led the yields on benchmark Spanish 10-year bonds to climb above 7 percent on Thursday.
It is a critical level, according to analysts, given that this was the level of Ireland and Portugal when the decision was taken to rescue them.
This yield is the highest registered level for Spanish sovereign debt since 1995. The risk premium, which is the gap between the yield on its 10-year bonds and those of Germany, hiked to 550 basis points, which is above the record registered on June 1.
Both Ireland and Portugal asked for financial assistance from the European Union two weeks after the yield on their debt passed 7 percent.
The rating agency downgraded the rating of Spain three notches late on Wednesday evening, one notch from the so-called junk bonds levels.
The measure was justified by the fact that the recent rescue for the Spanish banking sector, which was agreed between the Eurozone finance ministers on Saturday, will “increase” the weight of the debt and limit even more the access to financial markets, a factor that will put pressure on the “continued weakness” of the Spanish economy.
This development puts into doubt whether the injection of up to €100bn, which was the maximum amount the European Union agreed to provided, will be enough or if it will be necessary with a second rescue of the banking sector or even a complete rescue for the whole Spanish economy.
This article was translated and edited by Stina Lunden.
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