With IBEX down 6%, 10Y yields over 7.30%, 10Y spread over 610bps, and EURJPY at 12 year lows; the hits just keep coming. From Ega-Jones:
Slipping - Spain's 10 year debt is now yielding 7.18%, which is a reflection of the weakening of the economy and the credit quality of Spain. In addition to the expected austerity riots, the latest news is that Valencia and other regions will need $15B of aid, the sen. debtholders of the weak banks will be forced to take losses, and there might be some sharing of losses among all banks. An estimated decline in GDP of 1.7% (per the Economy Ministry), the 25% unemployment, the IIF's recent estimate of addl bank loan losses up to EUR260B, and possible depositor withdrawals hurt. From 2008 to 2011, Spain's debt mushroomed from EUR436B to EUR735B while its GDP declined from EUR1.09T to EUR1.07T. Social benefits are a major problem; while pmts to the govt have been more or less flat over the past four years (up EUR 3B), payments from the government have been up EUR 45B. As a result, Spain is short about EUR50B per year for social payments, EUR20B per year for interest, and an additional EUR 20B for asset growth; hence the EUR90B per annum increase in debt.
Spain will inevitably be faced with addl pmts to support a portion its banking sector and for its weaker provinces. Assets of Spain's largest two banks exceed its GDP. We are slipping our rating to "CC+"; watch for more requests for support from the banks and money creation.