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Spain's borrowing costs hit fresh highs Spain's borrowing costs hit fresh highs
(39 minutes later)
Spanish bond yields hit a 16-year high on Thursday amid calls for eurozone ministers gathering in Luxembourg to back plans to reduce government borrowing costs.Spanish bond yields hit a 16-year high on Thursday amid calls for eurozone ministers gathering in Luxembourg to back plans to reduce government borrowing costs.
Madrid sold 2.2bn euros (£1.7bn) of bonds repayable over two, three and five years.Madrid sold 2.2bn euros (£1.7bn) of bonds repayable over two, three and five years.
It paid a yield of 6.07% on five year bonds, up from 4.96% in May.It paid a yield of 6.07% on five year bonds, up from 4.96% in May.
Seperately, the results of an audit into the funding needs of Spanish banks is due to be published later.
Spain has raised 61% of the money it needs to fund government spending and debt repayments this year.Spain has raised 61% of the money it needs to fund government spending and debt repayments this year.
Most of Spain's debt was amassed during times of much lower lending rates and is not due to be repaid for several years, so the country's average cost of borrowing remains at a relatively low 4%.Most of Spain's debt was amassed during times of much lower lending rates and is not due to be repaid for several years, so the country's average cost of borrowing remains at a relatively low 4%.
Demand for Spanish debt also rose slightly from last month suggesting investors have not lost faith in Spain's ability to meet its financial obligations.Demand for Spanish debt also rose slightly from last month suggesting investors have not lost faith in Spain's ability to meet its financial obligations.
"Spain can withstand a rise in borrowing costs for a temporary period," said Sarah Hewin, head of european research at Standard Chartered."Spain can withstand a rise in borrowing costs for a temporary period," said Sarah Hewin, head of european research at Standard Chartered.
However yields on the secondary debt markets, where investors can buy and sell Spanish bonds sold at previous government auctions, have hit much higher levels.However yields on the secondary debt markets, where investors can buy and sell Spanish bonds sold at previous government auctions, have hit much higher levels.
On Monday, the yield on benchmark ten-year debt hit a record high of 7.3% on the secondary market. Italy and Portugal were forced to seek bailouts when their borrowing costs exceeded 7%.On Monday, the yield on benchmark ten-year debt hit a record high of 7.3% on the secondary market. Italy and Portugal were forced to seek bailouts when their borrowing costs exceeded 7%.
Eurozone bailout talksEurozone bailout talks
Later on Thursday, independent auditors will detail the size of debts held by Spanish banks relating to risky lending to homebuyers and property developers.Later on Thursday, independent auditors will detail the size of debts held by Spanish banks relating to risky lending to homebuyers and property developers.
Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule. Glossary in full		 Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule. Glossary in full
That is expected to prompt a formal request by Madrid for eurozone money at the meeting of ministers. European leaders have already approved up to 100bn euros of loans from European bailout funds for this purpose.That is expected to prompt a formal request by Madrid for eurozone money at the meeting of ministers. European leaders have already approved up to 100bn euros of loans from European bailout funds for this purpose.
Cyprus faces similar problems with highly indebted banks and is expected to ask for approximately 10bn euros.Cyprus faces similar problems with highly indebted banks and is expected to ask for approximately 10bn euros.
Greece debt renegotiationGreece debt renegotiation
Greece is also expected to ask eurozone finance ministers to ease conditions on its bailout.Greece is also expected to ask eurozone finance ministers to ease conditions on its bailout.
The country's new finance minister Vassilis Rapanos faces a difficult task. The ruling coalition's mandate to make further spending cuts is very weak following two divisive elections in a matter of weeks.The country's new finance minister Vassilis Rapanos faces a difficult task. The ruling coalition's mandate to make further spending cuts is very weak following two divisive elections in a matter of weeks.
But, according to the head of the Euro Working Group, Thomas Wieser, the faster-than-expected fall in national wealth now makes it impossible for Greece to meet the conditions of its bailout without making deeper cuts.But, according to the head of the Euro Working Group, Thomas Wieser, the faster-than-expected fall in national wealth now makes it impossible for Greece to meet the conditions of its bailout without making deeper cuts.
He said that eurozone ministers face a stark choice of either sticking to the fiscal targets and needing additional cuts, or changing the deadlines and needing extra money.He said that eurozone ministers face a stark choice of either sticking to the fiscal targets and needing additional cuts, or changing the deadlines and needing extra money.
Extending the term of Greece's loans would reduce the country's monthly payments and give economic reforms such as the lower minimum wage and more liberal work practices more time to generate the economic growth necessary to repay the country's huge debts.Extending the term of Greece's loans would reduce the country's monthly payments and give economic reforms such as the lower minimum wage and more liberal work practices more time to generate the economic growth necessary to repay the country's huge debts.
Bond-buying schemeBond-buying scheme
There has been mounting speculation that the eurozone might try to help countries under pressure in the financial markets, such as Italy and Spain, by using the bailout agencies to buy up their debts.There has been mounting speculation that the eurozone might try to help countries under pressure in the financial markets, such as Italy and Spain, by using the bailout agencies to buy up their debts.
The Italian leader Mario Monti has suggested it. The German Chancellor Angela Merkel has not rejected it but she has described it as a purely theoretical idea; it is not under discussion she said. Finland opposes it.The Italian leader Mario Monti has suggested it. The German Chancellor Angela Merkel has not rejected it but she has described it as a purely theoretical idea; it is not under discussion she said. Finland opposes it.
The biggest question of all is whether the eurozone can move towards more integrated government finances and bank regulation.The biggest question of all is whether the eurozone can move towards more integrated government finances and bank regulation.
They are politically difficult, but that is what many observers think it would take to stabilise the eurozone.They are politically difficult, but that is what many observers think it would take to stabilise the eurozone.
Finance ministers meeting in Luxembourg can't resolve those issues. Leaders will wrestle with them next week.Finance ministers meeting in Luxembourg can't resolve those issues. Leaders will wrestle with them next week.
There is also mounting pressure on eurozone leaders to intervene to bring down government borrowing costs.There is also mounting pressure on eurozone leaders to intervene to bring down government borrowing costs.
The constitutions of the European Union's existing bailout fund, the European Financial Stability Facility (EFSF), and the new European Stability Mechanism (ESM) fund, which is due to come into force next month, allow both to lend money to governments.The constitutions of the European Union's existing bailout fund, the European Financial Stability Facility (EFSF), and the new European Stability Mechanism (ESM) fund, which is due to come into force next month, allow both to lend money to governments.
In an interview with the Financial Times, Benoit Coere, a senior policy maker of the European Central Bank said: "Certainly it's a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility."In an interview with the Financial Times, Benoit Coere, a senior policy maker of the European Central Bank said: "Certainly it's a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility."
Providing a cheaper alternative to commercial bond markets would reduce the cost of financing government borrowing and enable countries such as Spain and Italy to meet strict targets on reducing total national debt.Providing a cheaper alternative to commercial bond markets would reduce the cost of financing government borrowing and enable countries such as Spain and Italy to meet strict targets on reducing total national debt.
In the longer term, eurozone leaders are moving towards a system of more integrated government finances and bank regulation which could prevent future sovereign debt or banking crises.In the longer term, eurozone leaders are moving towards a system of more integrated government finances and bank regulation which could prevent future sovereign debt or banking crises.
But, at this week's meeting of leaders from the world's 20 biggest economies, there seemed to be consensus that eurozone politicians will have to put in place interim measures such as a bond-buying scheme soon to prevent the current crisis from deepening.But, at this week's meeting of leaders from the world's 20 biggest economies, there seemed to be consensus that eurozone politicians will have to put in place interim measures such as a bond-buying scheme soon to prevent the current crisis from deepening.