London - Arabstoday
The prospect of more Spanish regional governments following Valencia in asking for aid sent the cost of insuring the nation’s debt to a record. Credit-default swaps on Spain jumped as much as 31 basis points to 636, according to data compiled by Bloomberg, and were at 632 at 1.30pm in London. A basis point on a swap protecting 10 million euros (Dh44.61 million) of debt from default for five years is equivalent to 1,000 euros a year. Spain created an 18 billion-euro bailout mechanism last week to help cash-strapped regions even as it struggles to access financial markets, with 10-year bond yields surging as high as 7.57 per cent on Monday, before trading at 7.49. Catalonia yesterday said it’s considering tapping the fund and El Pais reported that four other regions may seek assistance. “With Spain already struggling to fund itself, investors are right to fret over what an additional 18 billion euros of funding would do,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. Swaps on Spain imply a 42.5 per cent chance of default within five years, according to CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements. Spain’s regions face about 15 billion euros of debt redemptions in the second half of this year as the nation’s recession worsens. The Euro-area’s fourth-largest economy shrank 0.4 per cent in the three months through June as the toughest austerity measures in its democratic history pushed the country to a third consecutive quarter of contraction, the Bank of Spain said today. Borrowing costs Surging borrowing costs are also threatening Italy, where Prime Minister Mario Monti said last week that Spanish protests against austerity are adding to euro concerns. Italy’s 10-year benchmark bond over similiar-maturity German securities was 5.20 percentage points, the highest since January 10, and credit-default swaps jumped 21 basis points to a more than one-month high of 547. Concern that Greece is struggling to meet its bailout commitments ahead of tomorrow’s visit by the troika of international creditors — the European Commission, the European Central Bank and the International Monetary Fund — also weighed on sentiment. “Sovereign debt restructurings beyond just Greece are still on the cards,” said Neil Williams, chief economist at Hermes Fund Management in London. “Every ‘cunning plan’ so far to solve the euro-zone crisis seems to take one step forward, then two steps back.”