SPAIN : THE MARKETS ARE EXPECTING NEW DEVELOPMENTS SOON

Translated from the French by Tim Gupwell

Exceeding 6% on 10 year debt is already dangerous. According to the terms of the balanced budget rule, this signifies that a nation will require growth of around the same amount, whereas in fact Spain has registered a negative growth since the beginning of the year! So, 7.567% at 10.15 this morning! As the German 10 year Bund stands at 1.255%, this means that for Spain over 10 years there is a risk premium (for the possibility of the debt not being repaid) which can be reckoned at 6.312%.

Welcome to a world of mistrust! Moreover, when the risk premiums in rates for shorter term maturities reach, or even exceed, those maturing at later dates, it signifies that the capital markets presume that something is going to happen soon, and something not very pleasant. This morning the rate for 5 year Spanish debt is rivaling the rate for 10 year debt: 7.543% at 10.16. The 5 year German rate stands at 0.334% ; which means that in this case the risk premium for Spain is 7.209%. Translation: the danger over five years is considered as being greater than over ten. In other words, according to the capital markets, there will soon be new developments.