Monday, July 23, 2012

Spanish government bonds dive on bailout fears

* Risk of Spanish bailout grows; bonds in free fall
* Greek funding worries add to peripheral pressure
* Bund yields set to mark new lows on safe-haven flows

Spanish government bonds sank on Monday, pushing yields sharply higher, on fears the government will lose access to debt markets and need a full bailout as its regions began lining up for financial help.

Worry over Greece resurfaced with international lenders scheduled to gather in Athens to discuss the terms of further rescue payments, after its prime minister said the country was mired in a "Great Depression"..

As risk aversion dominated financial markets, five- and 10-year German government bond yields hit new lows and U.S. T-note yields hit their lowest since the early 1800s.

The Spanish region of Murcia moved closer to following Valencia in seeking financial aid from the government, which set up an 18 billion euro fund earlier this year to help the regions refinance their debt. Media reported half a dozen others were ready to do likewise..

"Given the market reaction on the back of the news that more and more regions are looking to tap into the liquidity fund..., it will be very difficult for Spain to circumvent further support for itself," said Norbert Aul, a rate strategist at RBC Capital Markets.

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