The troubled Spanish economy has raised further concerns across the world for its stability over its sale of bonds . The debt-laden nation raised €2.98 billion in bond sales, but was forced to pay higher interest rates on the sales.
The average yield on bonds repayable in five years hit a high of 6.46%, up from 6.07% at an auction earlier in the month, while the average yield on seven year bonds jumped to 6.7% from 4.83%. The sale has highlighted the plight of one of the hardest hit economies in the Eurozone crisis and raises serious questions about the way in which recovery will be tackled.
Concerns have been raised by leading hedge fund management firms such as Moore Capital Management founded by Louis Moore Bacon and Philip Falcone’s Harbinger Capital Partners over the impact that the Spanish economy may have on the European market, and in turn the US financial sector. Given that these leaders engage in macro investment – the investment into economies – the news of the wavering bond sale in Spain is worrying.
It seems this fear is justified, given that the demand for the bonds from investors dropped considerably, with the bond issue oversubscribed by 2.1 times, compared to 3.4 times at the earlier auction.
The concern amongst investors can be traced directly to worries over Spain’s high funding costs and the apparent lack of a comprehensive and coherent recovery plan amongst the Spanish economic elite and Eurozone governments.
The four year economic downturn in Spain is one of the central issues facing a struggling Eurozone, and in turn the US and worldwide market. The way in which it deals with the problem – as well as how economies such as that of Greece, Italy and Portugal handle the issue – will contribute considerably to the way in which its legacy is perceived.
The scale of the problem has been highlighted by the German parliament’s recall from their annual summer break to vote on emergency Eurozone action. German MPs have now voted on the distribution of €100 billion in aid to be given to Spain. Though Chancellor Merkel was expected to suffer a small rebellion from disgruntled MPs, the aid package proposal has passed through the legislative chamber fairly easily, with 473 votes for and only 97 against. However, included in the rebellion were 22 members of Merkel’s coalition, a fact that may affect financial politics later on.
The bailout comes at a time when Germany is nearing bailout fatigue and other measures are faltering. Markets are already preparing for a further bailout of around €400 billion, which will mark the point at which Spain realises it has little to lose and asks for a full sovereign bailout. This next bailout will be a great test of commitment for those attempting to repair the damage dealt by the crisis and will be an indicator of exactly how much the Eurozone is willing to commit in bailout funds.
How this will affect the worldwide and particularly the American market is uncertain, but it is certainly enough to cause doubt amongst the financial sector’s experts.
regionalindexesexplained.wordpress.com 