PARIS (MNI) – Spanish 10-year bond yields rose back to the 6% level
on Monday, with prices falling for a third consecutive day amid ongoing
uncertainty about Madrid’s plans to request a Eurozone rescue package in
order to lower its borrowing costs.

The benchmark 10-year Spanish government bond rose to a high of
6.01%, up from a low of 5.63% last Thursday, while yields on 2-year
Spanish government notes jumped to 3.35% from a low last week of 2.74%.

Signing up for an aid package with Europe’s bailout fund and
abiding by the conditions attached to it is the main requirement to
qualify for the recently-announced bond buying program of the European
Central Bank.

Analysts said continued signs of hesitancy by the Spanish
government and conflicting views among its Eurozone partners about the
necessity and timing of new aid for Madrid has made the market less
confident of seeing ECB intervention any time soon.

“The longer this drags on the more we will see market pressures
return,” said Mujtaba Rahman, an analyst at the Eurasia Group. “The
market lull will exist only as long as ECB intervention is seen as
imminent,” he said.

Friction at the European level is being driven by national
self-interest, Rahman said. The German government is urging Spain to
hold back on seeking a bailout because it is reluctant to bring a
another aid request to the Bundestag. Italy and France, meanwhile, are
urging Spain toward a rescue in order to create a stronger firewall to
protect their own economies from contagion, Rahman said.

Spanish Prime Minister Mariano Rajoy’s Peoples Party is facing a
key test with regional elections in Galicia and the Basque country on
October 21. Amid deep voter dissatisfaction with the government’s strict
austerity plans, Rajoy is reluctant to seek any outside financial help
before the ballots are cast, analysts said.

Adding to its political worries, the Spanish government is about to
step up the pace of its borrowing as it faces a big increase in debt
maturities in the months ahead.

The Spanish Treasury said Monday it would auction between E3.5
billion and E4.5 billion of 12-month and 18-month bills on Tuesday and
the same amount worth of bonds on Thursday. Spain has not attempted to
raise more than E3.5 billion from a bond auction since March.

Thursday’s bond auction “will provide a key litmus test as to how
much breathing space Spain actually has,” analysts at Rabobank said in a
research note on Monday.

–Paris newsroom, +33142715540; jduffy@marketnews.com

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