Spain's risk premium hits new high on Italy contagion

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http://www.elpais.com/articulo/english/Spain/s/risk/premium/hits/new/high/on/Italy/contagion/elpepueng/20110711elpeng_5/Ten

Spain's risk premium on Monday broke through 300 basis points for the first time since the euro came into existence as the debt crisis in the single-currency bloc extended its tentacles to Italy.

The differential between the yield on the Spanish benchmark 10-year government bond and the German equivalent opened at 307 basis points before easing somewhat to 303 basis points. It closed around 285 basis points on Friday when contagion from Italy was already evident as doubts about the country's ability to service its heavy debt grew. The blue-chip Ibex 35 index extended Friday's heavy losses and was down by almost 3 percent at early afternoon.

Portuguese government bonds also slumped and the euro weakened against the dollar.

"You can clearly see the market is worried," Bloomberg quoted Michael Leister, a fixed-income analyst at WestLB in London, as saying. "We are seeing a self-fulfilling prophecy, where yields increase due to contagion and then the market gets worried about the high funding costs, as do the rating agencies."