Spanish bond yields hit the highest levels since the creation of the euro, adding to concerns that the euro-zone debt crisis may be spreading.
Bond markets were again the main drivers Thursday, as the 10-year Spanish bond yield hit a euro-era high. Spain sold 3.56 billion euros ($4.8 billion) of bonds at 6.975 percent, while France sold 3.332 billion euros of 2016 notes yielding 2.82 percent.
Meanwhile, the yield on the 10-year Italian government bond remained above the crucial 7% level at 7.03%, which makes it expensive for the Italian government to sustain debt. The 2-year bond was at 6.43% and the 5-year yield was at 6.92%.
The pressure on bond yields seen recently has increased calls for the European Central Bank to intervene more heavily in the market, but the clash of opinion between France and Germany on the matter has added another layer of uncertainty to the mix.
“The ongoing discussion over the usage of ECB as the firewall for the current crisis is overshadowing the market sentiment,” said Lloyds TSB Corporate Markets.
France is calling for stronger ECB action, but Germany continues to reject calls for the Bank to print money and buy bonds on a bigger scale. German Chancellor Angela Merkel insisted Wednesday that only economic reforms by national governments can solve the crisis.
Meanwhile, investors are increasingly worried that a credible solution to the debt crisis may not be forthcoming, after the ECB’s intervention in bond markets Wednesday—it bought Italian Spanish and Portuguese paper—failed to calm markets.