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Spain's cost of borrowing heading for turbulence

Thu 18th Nov 2010

The bond auction that will take place later today is expected to result in Spain's cost of borrowing increasing due to the EU's struggle with Ireland's plea for emergency help, and the risk of this infecting other countries in the Eurozone.

Earlier this week the 'extras' that investors demanded in withholding Spanish ten-year bonds over the German ten-year bonds jumped four basis points to reach 198.2 - an increase of twenty six basis points from 16, September when for the last time debts maturing in 2010 and 2041 were sold by Spain.

On Tuesday Spain placed twelve month bills at a cost of 3.7 billion euros to yield two 2.363% compared to 1.842% from October's auction.

Finance ministers representing a number of Eurozone member states met in Brussels to try and reach an agreement on the financial aid package to be offered for the troubled Irish banks - and one which the Irish government did not accept.

Jose Carlos Diez, the chief economist at Madrid's Intermixed SA, stated that 'if a credible plan can be worked out for Ireland then tension will reduce and Ireland as a whole will benefit'. He continued to say how such 'emergency aid packages take time to materialize and can only happen through a difficult process. Tensions will have to remain as long as there is a solution in sight'.

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