Spain’s borrowing costs grew higher on Thursday after new economic data indicated that Spain is in recession. The Spanish economy declined 0.3 % in the first quarter which sends the country back into recession while tough austerity measures, plunging real estate values, and high unemployment continue to grip the economy.
Spain’s 10-year yields rose above 6 % and is causing worry among investors who see any move towards 7% as a concern and unsustainable for the struggling country.
The 10-year Spanish government bond yield was up 4.5 basis points at 6.31%.
Spain’s banking sector is particularly vulnerable due to high volume of losses and exposure to Spain’s plunging real estate market.
El Mundo newspaper reported that during the past week Spanish customers at Bankia SA withdrew more than 1 billion euros ($1.3 billion).
Last week, the Spanish government took over Bankia, the fourth-largest lender in Spain which has 10 percent of Spanish deposits, in an effort to alleviate concerns over its ability to control losses from the real estate decline which began in 2008 and continues to plague the Spanish economy.
The Spanish government told the banking sector last week to re-allocate another 30 billion euros to increase capitalization levels.
Uncertainty over banking reform in Spain has raised new concerns that Spain may require a large scale international bailout, a difficult cost for the 17 member euro zone that is stressed about a possible Greek exit from the Euro zone.