Spain Bailout Prompts Bond Selling

Rescue seen binding banks and the nation more closely.

Spanish bond yields rose to the highest in more than a week as investors speculated the 100 billion-euro ($125 billion) bailout for lenders may fall short, while binding the banks and sovereign more closely together.

The lifeline from the euro area, aimed at loosening the connection between banks and the state, risks doing the opposite as foreign investors continue to shun the nation’s bonds and Prime Minister Mariano Rajoy’s government grows increasingly dependent on domestic lenders.

Capital Flight

Spain saw 22.6 billion euros of foreign investment in stocks and bonds leave the country in March, compared with 2 billion euros a year earlier, Bank of Spain data show. At a debt auction on May 17, foreign investors accounted for just 20 percent to 30 percent of buying, a government official who declined to be named told reporters in Madrid.

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