Contagion Fears Hit Euro; Spanish Bond Spreads Widen

By Mark Brown and Eva Szalay
WSJ

Spanish and Italian bond spreads over German bunds rose sharply to new highs, as did the cost of European sovereign debt insurance, while the euro continued to tumble, as euro-zone contagion fears continue to roil currency and debt markets.

The premium demanded by investors to hold Spanish 10-year bonds over the benchmark German bund rose over 30 basis points to more than 300 basis points, while Italy’s 10-year bund spreads rose over 20 basis points to 215 basis points, according to Tradeweb, record highs in both cases.

“Spain has a funding requirement in excess of 150 billion euros for 2011 and Italy needs close to 340 billion euros,” said Gary Jenkins, head of fixed income research at Evolution Securities in London, in a note.

“With the market moving rapidly onto Spain and Italy it is possible, that too big to fail becomes too big to bail,” he added.

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