Yields on Spanish government bonds surged past the critically important level of 7 percent in Thursday afternoon trade in the wake of Moody’s cut of the country’s credit rating to Baa3 from A3 on Wednesday.
Yields on 10-year Spanish government bonds jumped to 7.01 percent as of 09:10 GMT from 6.772 percent on Wednesday’s close.
Moody’s decision came in the wake of the Spanish government’s intention to borrow up to 100 billion euros ($126 billion) from the European Financial Stability Facility (EFSF) or from its successor, the European Stability Mechanism (ESM), to recapitalize its banking system, which will further increase the country’s debt burden.
The other key factors for the downgrade were the Spanish government’s “very limited financial market access” and continued weakness of the country’s economy.
The ratings agency also placed Spain’s rating on review for a possible further downgrade. Moody’s expects to conclude the review within three months.