Spanish Bankia bailout hits bonds, trigger investor concerns | WPN World People News

Fears grew over the health of Spanish banking sector as the risk premium on the country's debt hit a euro-era high Monday after the government announced a $24 bailout for banking conglomerate of Bankia, the third largest state lender.

Spanish Prime Minister Mariano Rajoy blamed the rising borrowing costs on concerns about the future of the euro zone.

He ruled out seeking outside aid to revive the banking sector hit badly by property boom that has busted.

"There are major doubts over the euro zone and that makes the risk premium for some countries very high. That's why it would be a very good idea to deliver a clear message there's no going back for the euro," Rajoy told reporters.

"There will not be any (European) rescue for the Spanish banking system."

The announcement to bailout Bankia has raised concerns that the government may be on the lookout for further funds to prop up its fragile banking sector.

Spanish 10-year bond yields rose to 6.5 per cent - its highest since November 2011, when the European Central Bank was forced to step in and buy the country's debt.

The bonds then eased back to 6.43 per cent, according to Tradeweb. The yield spread against 10-year bonds widened to more than 500 basis points, a record high.

The higher bond yields rise, the more expensive it is for governments to borrow and roll over their debts.

There is speculation that Spain might ask the ECB to help the government so it will not need the permanent rescue fund, which will be up and running from July, according to the BBC.

Shares in Spain's Bankia initially fell 27 per cent before trimming losses to 11 per cent later Monday.

"Spain is under a lot of pressure right now on Bankia and the never-ending cost of the bailout there," a trader told Reuters.

Source: Europe News.Net