It had to pass sometime. Spain had managed to keep itself in the background during an upsurge of the PIGS debt crisis. Until now. The new tensions between Germany and the European Central Bank about whether they should participate in the new plan to assist Greece (the Germans are backing this measure and the Central Bank is not) have agreed that investors are once again putting Spain in the group of PIGS countries.
Being back in this group comes as a shock. The profitability of Spanish bonds rose when bond prices fell, but hit 10-year highs yesterday, reaching 5.65%. The Spanish risk premium hit an annual high of 274 basis points.
All this in a day in which the treasury would have it out with the investors during a new debt sale. The result? There was high demand but the risk premium that it had to pay also rose. 6.04% for debt obligations of 15 years compared to 5.695% rates during the May sale.
And Spain might have to remain in the PIGS until upcoming sales, considering that everything suggests that a decision about the bailout will be delayed until further this weekend. Yesterday the commissioner of Economic Affairs, Olli Rehn, assured that it would be pushed back until July.
Market volatility is guaranteed. Stock market dips are likely to occur, but above all new rallies in the profitability of Spanish bonds could be seen as long as they keep selling PIGS debt and buying German debt. The profitability of the German bund has fallen from 3.10 percent to 2.91 percent in June.
