Eurozone crisis live: Spanish borrowing costs hit new high after double downgrade

Spanish ten-year yields breach 6.9%; Italian auction eagerly awaited
Today’s agenda

Liveblogging now: JuliaKollewe

8.32am: France’s Crédit Agricole, the owner of Greece’s largest foreign-held bank Emporiki, is drawing up plans to abandon the lender if Greece leaves the eurozone, the Wall Street Journal reports.

Sunday’s second Greek election, after the 6 May poll failed to produce a conclusive result, is seen as effectively a referendum on whether the country wants to stay in the euro. The vote pits the radical leftist Syriza party, which vehemently opposes the austerity measures tied to the Greek bailouts, against their conservative rival, New Democracy, which largely supports the bailout programme.

The Journal writes:

A host of international companies have said they are preparing contingency plans, with many voicing concerns about how to retrieve cash in the country if Greece exits the euro zone. But none have disclosed potentially walking away from their assets in Greece.

Crédit Agricole’s contingency plans for Emporiki Bank of Greece, Greece’s sixth-largest bank, add to the bleak landscape, even after two multibillion euro bailouts extended by European Union countries and the International Monetary Fund. The banking sector is reeling from rising bad loans as the economy—now in its fifth year of recession—nose dives and fears over an eventual exit from the euro zone shatter consumer confidence.

8.21am: This just in from Markus Huber at ETX Capital, ahead of the Italian bond auction at 10am:

European equity markets are trading little changed today with Italian bond auctions expected to take centre stage in midmorning. With crucial elections in Greece being less than three days away and periphery yields having spiked substantially to the upside since Spain agreed to outside help for their troubled banking sector last weekend, many would consider the current environment anything than ideal to stage bond auctions.

The auctions are manageable but investors in return for their trust will certainly be demanding an extra premium in form of higher yields once more. General activity is expected to be moderate at best with many preferring to stay on the sidelines until the situation in Greece and their ‘indirect referendum’ on remaining in the euro has been decided or at least become somewhat clearer.

8.15am: Spanish ten-year yields at 6.912% now, and it’s only 8.15am. Chris Adams, financial markets editor at the Financial Times, tweets:

8.08am: Thought it was worth mentioning German finance minister Wolfgang Schäuble’s sniping at Greek yachtowners yesterday.

“In a crisis… the little man suffers and the rich feather their own nests,” Schäuble told German magazine Stern.

It is not easy to cut the minimum wage in Greece, when you think of the many people who own a yacht.

But, he stressed, if Greece wanted to regain competitiveness, the minimum wage “must fall”.

An election result will not change anything about the real situation of the country, which is in a painful crisis due to decades of economic mismanagement.

8.04am: Spanish and Italian bond yields are surging, and European stock markets have opened lower. The FTSE 100 index in London has edged down 3 points to 5480. Spain’s Ibex is down 0.5%, Italy’s FTSE MiB 0.1%, Germany’s Dax has fallen 0.3% and France’s CAC has slipped 0.2%.

8.00am: Spanish ten-year yields have just broken through 6.9%, up 13 basis points this morning. Italian yields are tracking them, rising 8 bps to 6.3%.

7.54am: Here is today’s agenda:

9am ECB publishes June monthly report
10am Italy sells 2015/2019/2020 BTPs for up to €4.5bln
10am Eurozone consumer price inflation for May (final) (previous: annual rate 2.4%)
• Italian prime minister Monti meets French president Hollande in Rome
1.30pm US consumer price inflation for May – monthly figure expected to show a drop of 0.2% while annual rate forecast to drop from 2.3% to 1.9%
1.30pm US Weekly jobless claims are expected to remain around the 375,000 mark
7pm UK chancellor and Bank of England governor speak at the annual Mansion House Dinner

7.37am: Equity market calls from Michael Hewson, senior market analyst at CMC Markets UK:

• FTSE100 is expected to open 10 points lower at 5,474
• DAX is expected to open 2 points lower at 6,150
• CAC40 is expected to open 2 points lower at 3,028
• FTSEMib is expected to open 17 points lower at 12,882

7.30am: We are fast approaching the point where both Spain and Italy may have to be removed from the market, writes Gary Jenkins of Swordfish Research.

Unless there is a move towards a fiscal union or at least temporary common euro bonds the most likely way of doing this is for the ECB to buy in the secondary market and for the ESM to buy in the primary market. But that might not be enough firepower unless the EU increases the size of the firewalls.

In his morning musings, he also writes:

We might just be heading towards the endgame where German politicians have to make the most difficult decision of their careers; do they put Germany’s credit on the line to try and save the Eurozone or do they walk away? We have been slowly approaching this point for years but events seem to be picking up pace after the debacle of the attempted bailout of Spain.

There are ever more desperate cries for help coming from Spain and Italy (“ECB is the only institution able to restore stability” – PM Rajoy) and according to the FT France is pushing again for the ESM to be given a banking licence, be able to recapitalise banks directly and be leveraged. According to the Telegraph Ms Merkel is prepared to consider a “European Redemption Pact” which was first mooted last year in Germany.

7.25am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis.

Spanish borrowing costs have just hit a new high. The interest rate on ten-year government bonds has climbed 8 basis points this morning to 6.864%, levels last seen in the 1990s before the euro was introduced. Italian yields have risen by 6 points to 6.289%, ahead of an eagerly awaited auction of three-year bonds later this morning. Yesterday’s auction was not considered a success, when Italy sold €6.5bn of one year paper at 3.97% – well above the 2.34% at the previous auction.

Spain was rocked by a double downgrade last night: ratings agency minnow Egan Jones downgraded the country to CCC+ with a negative outlook. Moody’s followed, cutting Spain by three notches to Baa3 – leaving it just one notch above junk – and kept its rating on review for a further downgrade in the next three months. It cited the Spanish government seeking up to €100bn of external funding from the EFSF or ESM to bail out its banks, which will increase the country’s debt burden.

Over in Greece, the run on the banks has intensified. Daily cash withdrawals have increased from €100m-€500m to between €600m and €900m a day ahead of this Sunday’s elections, which many fear could herald the country’s exit from the euro.


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