Borrowing costs surge for Spain

Rate at euro-era high as banks downgraded

MADRID — Spain’s benchmark borrowing rate hit its highest level Tuesday since the country adopted the euro currency.

The surge in borrowing costs came after ratings agency Fitch downgraded 18 banks and investors continued question Spain’s decision to seek help for its ailing bank sector by tapping a 100 billion euro ($125 billion) bailout fund.

The yield on Spain’s 10year bond yield rose to hit 6.81 percent in afternoon trading, according to data provider FactSet, while stocks seesawed between positive and negative territory and ended the day almost unchanged, up 0.1 percent.

The bond rate seen as a measure of a nation’s financial health fell back to 6.67 when markets closed. That’s the same level as Spain’s previous record, set on May 30. This brings Spain’s borrowing costs dangerously high to 7 percent — close to the level at which Greece, Ireland and Portugal sought international bailouts.

Spain agreed last weekend to take a European bailout for its banks, but investors are worried it will not solve the country’s problem as the government may have trouble paying the money back.

Fitch said the weakness of the Spanish economy would continue to have a negative effect on business volumes “which, together with low interest rates, will place pressure on revenues.”

There has been growing concern that an increasingly large amount of Spanish government debt is being bought by its banks as the country finds fewer and fewer international buyers for its bonds.

While Spain’s bailout is designed to prop up its banks, investors are also worried that the Spanish government might eventually be forced into asking for a bailout to help it pay its way.

Recession-hit Spain, which has the eurozone’s fourth-largest economy with unemployment of nearly 25 percent, may be too big for the eurozone’s rescue funds to handle.