Canadian Manufacturing

Spain, Italy facing continued financial distress

Two countries could require major financial bailouts in near future, according to Harris Private Bank



TORONTO and CHICAGO—Despite European policymakers’ best intentions, long-term sovereign bond yields in Spain continue to hover at dangerous levels, according to Harris Private Bank.

With Italy’s debt crisis also sending up red flags, these two countries could require major financial bailouts in the near future, according to Harris Private Bank’s latest market update.

“While many people head out for vacation during the summer months, the capital markets do not take a break,” Harris Private Bank chief investment officer Jack Ablin said in a statement. “In fact, August 2011 saw widespread stock sales, prompting the Euro Stoxx 50 Index of major corporations to drop 8.6 percent in dollar terms.”

Ablin said now, in the summer of 2012, countries like Spain and Italy continue to experience financial distress, with the latter facing borrowing rates that Spain stared down three months ago.

He said Spain is in need a large cash infusion in the near future, with Italy hot on its heels.

Since Spain’s interim low in early March 2012, the yield on its 10-year government obligations have trended toward seven per cent.

Industry reports suggest that before the end of 2014 the Spanish government must borrow EUR250-billion to cover its budget deficit and bond redemption.

Furthermore, short-term yields on Spanish and Italian debt have fallen several percentage points in the last two weeks, indicating the market is anticipating a major Spanish bailout from the European Central Bank.

Based on the trend in Italian debt spreads, Europe’s third largest economy may need a major Spanish-style bailout as well.

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