On Thursday, the Spanish government’s borrowing costs came within a whisker of their euro-era high. Madrid’s 10-year bond yield jumped back above 7pc in a poorly-covered €3bn auction.
Trying to minimize its immediate financing costs, Spain has recently skewed its debt sales towards short-term instruments. Ominously, though, yields are soaring even on 2-year debt. Sovereign bonds for 2014 repayment were last week sold only at a huge 5.204pc yield, with Madrid now paying a fifth more for short-term money than it was six weeks ago. Even at these sky-high rates, the 2-year auction was also poorly-covered.
Long-suffering investors, desperate for some good news, have seized on the headlines from the latest in a long series of “last-ditch” European summits.
In Brussels on Friday, Angela Merkel certainly indicated some concessions on the use of collective eurozone bail-out funds to address soaring Spanish and Italian sovereign borrowing costs.
The German Chancellor, the argument goes, has “finally capitulated”, now agreeing to back-stop the banking sector debts – and, therefore, the worst of the sovereign debts – of the single currency’s profligate “Club Med” members. And so, we’re told, the eurozone will is now headed for the sun-lit uplands of stability and policy coherence.
“These global economic problems have their roots in the fools’ paradise we all used to live in,” observed Peter Mandelson on Friday, to a packed seminar at the St Petersburg International Economic Forum.
“Pretty much everyone borrowed and spent beyond their means and that’s now catching up with us,” continued the former Cabinet Minister. “And it’s the inter-twining of the sovereign debt and banking crises that makes any eurozone resolution extremely difficult”.