Spanish 10-year yields climbed 32 basis points to 6.8% on Tuesday. Italian yields surged as well, with skittish investors steering clear of 10-year bonds amid growing doubt about the nation’s solvency.
“It is quite likely that Spain needs a full bailout in the near future although policy makers will try all possible options to avoid this outcome, including a revival of bond purchases by the ECB as well as another three-year liquidity operation,” Pavan Wadhwa, global head of interest rate strategy at J.P. Morgan Chase, told The Wall Street Journal. The Spanish bond market has languished since the government sought a bailout package for its banking system. On Tuesday Fitch Ratings lowered the credit rating of 18 Spanish banks. The downgrade follows on the heels of the agency’s decision last week to cut the country’s credit rating by three notches to “BBB.”
