Spain has warned financial traders betting against its debt that they will lose money, in a defiant challenge to the markets which are driving Madrid’s cost of borrowing sharply higher.
José Luis Rodríguez Zapatero, Spanish prime minister, on Friday ruled out any rescue package for the country even as the premiums demanded by investors to hold Spanish sovereign debt over that of Germany’s rose to euro-era highs.
This week’s sharp rise in Spanish 10-year bond yields to 5.2 per cent is an indication of growing concern in eurozone bond markets that the fiscal crisis in Ireland could spread to other debt-laden countries including Portugal and Spain.
I should warn those investors who are short selling Spain that they are going to be wrong and will go against their own interests,
Portugal rejected as “totally false” reports it was under pressure to accept an international bail-out.
The eurozone’s peripheral bond markets came under further pressure amid increasing worries that the debt crisis was spreading. Irish yields rose 3 basis points to 9.071 per cent and Portuguese yields rose 3 basis points to 7.038 per cent.
The euro tumbled further in morning trading, to below $1.32 against the dollar, 3.5 per cent lower on the week and a fresh nine-week low.
On Thursday, Irish, Portuguese and Spanish bond yields surged to their highest points since the launch of the euro, as traders said even some of the bigger eurozone countries could soon be affected. Matt King, global head of credit strategy at Citigroup, said the danger was the selling could develop a momentum of its own.
“The moment you have even a flicker of a doubt about default risk, it becomes rational to reduce positions in a larger country like Spain purely on grounds of diversification,” he said.
The renewed volatility came as Germany rejected any suggestion of an increase in the size of the €440bn ($588bn) European financial stability facility – the eurozone rescue fund established by European Union finance ministers in May to help debt-laden members of the common currency zone.
Media reports said the German government had been approached by the European Commission to double the size of the rescue fund, to ensure funds were available in the event of Spain and Portugal seeking assistance.