Spanish spreads hit a record

Spain's 5 and 10-year spreads to Germany hit an all-time record this morning.

Spain 5y spread to Germany

The driver for the widening today was a difficult auction of Spanish bonds, though yields have been moving up for the last few days.

Reuters: - Spain's five-year borrowing costs hit new euro-era highs at an auction on Thursday, sending the euro lower, as it struggles to convince investors it can control its finances, while France sold bonds of similar maturities at yields below 1 percent.

The yield on Spain's July 2017 bond rose to 6.459 percent, up from 6.072 percent when it was last sold just a month ago and the most Madrid has paid to borrow at that maturity for 16 years.

Costs jumped on all three bonds offered, with the longest-dated, a seven-year, coming in near the 7 percent mark beyond which other euro zone countries have been forced to seek aid.

These increasing yields will reduce the value of Spanish banks' portfolios of government bonds, making the bank bailout more expensive. At some point the feedback loop to the banking system and increasingly expensive auctions become unsustainable.

SoberLook.com