Spanish 10-year bonds slid, pushing yields to more than 7 percent, after yesterday's Greek election failed to assure investors that politicians will be able to tame Europe's debt crisis.
Italian securities also fell and German bunds erased a decline. Spain's yield climbed to a euro-era record as a report today showed the nation's bad loans increased in April. The bonds tumbled last week after Europe's fourth largest economy requested as much as 100 billion euros ($126 billion) of aid on June 9 to support its banks. Greek bonds rose after pro-bailout parties won enough seats to control parliament.
"The spotlight is now back on Spain," said Christian Reicherter, a Frankfurt-based analyst at DZ Bank AG. "The market is worried about the bad loans at the Spanish lenders, which is pressuring the bonds. This goes to show that the European debt crisis isn't solved and we expect bunds to remain well supported."
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Spain's 10-year yield climbed 24 basis points to 7.12 percent at 11:18 a.m. London time, after increasing as much as 27 basis points to 7.14 percent, the most since the euro was introduced in 1999. The 5.85 percent security due January 2022 fell 1.58, or 15.80 euros per 1,000-euro face amount, to 91.34.
The yield on German 10-year bund, Europe's benchmark government debt security, was little changed at 1.44 percent after jumping as much as 11 basis points to 1.55 percent.
The euro erased a 0.9 percent advance, trading little changed at $1.2650, and the Stoxx Europe 600 Index of equities pared a 1.1 percent gain.
The New Democracy party won 129 seats, enough to put together a majority coalition with third-placed Pasok, according to final results announced by Parliament Speaker Vyronas Polydoras. Leader Antonis Samaras now begins his second bid in six weeks to build a coalition as euro-area finance chiefs pressure him to form a government that will keep bailout aid flowing. European officials indicated a willingness to ease the terms of rescue loans as long as Greece, with just weeks of cash in the bank, re-commits to their austerity demands.
Greece's 2 percent security due February 2023 advanced for a fourth day, with the yield sliding 91 basis points to 26.22 percent.
Spain became the fourth euro member to seek a bailout since the debt crisis began almost three years ago when it asked for aid to rescue its lenders.
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Bad loans as a proportion of total lending at Spain's financial institutions jumped to 8.72 percent in April from 8.37 percent in March, the Bank of Spain said on its website today. The 7 percent threshold on 10-year bonds helped trigger sovereign bailouts for Greece, Ireland and Portugal.
The extra yield investors demand to hold the Spanish securities instead of German bunds expanded to as much as 570 basis points, or 5.70 percentage points, today, the most since the euro's start.
Italy's 10-year yield climbed 11 basis points to 6.03 percent. The spread over bunds widened to 460 basis points.
Spanish bonds were the most volatile in euro-area markets, as measured by 10-year yields, the two-, 10-year yield spread and credit-default swaps.
Officials from the Group of 20 nations gathering at Los Cabos, Mexico will discuss a mix of measures to secure the global recovery that will include deficit reduction for some countries and pledges for additional stimulus by others with sounder finances, a Canadian official said.
Host President Felipe Calderon said yesterday that world leaders meeting in Mexico will agree to boost the $430 billion firewall the International Monetary Fund announced in April.
German bunds handed investors a return of 3.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds have gained 6.9 percent and Spanish debt has lost 6 percent, the indexes show.
Since the last day of trading before Greece's first election on May 6, German securities have gained 1.3 percent, while Spanish bonds have declined 5.4 percent and Italian securities have dropped 3 percent.
Bloomberg News
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