The torment of the 2011 debt crisis and Prime Minister Zapatero's administration are significantly increasing financing costs in Spain. Since January, the Spanish Treasury has issued 99 billion euros in notes, bonds, other debt obligations and 10 billion euros in syndicated deals.
With the interest from debt placements during the same period of 2010, the Treasury faced interest payments of 2.23 billion euros. Due to increasing tension around the Spain's creditworthiness, the cost to issue debt shot up 54% to 3.44 billion, a figure that's even more relevant if it's kept in mind that between May and June of 2010 Spain had already reckoned with financial consequences generated by the Greek bailout.
The increase reflects Spain's worsening image in the eyes of the markets. At the end of 2010, the Spanish risk premium (measured by how much extra interest investors demand for 10-year bonds as compared to their equivalent notes in Germany) were no more than 249 basis points. Currently, the risk premium gap has widened to 354 basis points and in the last few weeks has risen to 375, the highest level since Spain adopted the euro. Coupled with changes in the risk premium, the tension is also reflected in the yield curve of Spanish debt. It has been trending up for the past year and showing how near and long-term financing is becoming more expensive. Whether debt is sold for 3 months or 30 years, Spain is paying more for it.
