The situation in Spain has turned decidedly worse today. After yesterday's 3-notch downgrade by Moody's, yields on Spanish 10-year bonds are now hovering just around 7%. Credit default swaps for Spanish debt are now trading at 605 bps with a 40% chance of default over the next five years. These are the market indications that the Spanish bank bailout package is not credible. And for good reason; as details of the discussions surrounding Spain come to light, it is now clear how harsh the terms of the bailout could be.
Here is what I am hearing:
Penalty rates. There are scenarios being considered under which Spain would pay 8.5% for the bailout funds instead of the 3% being bandied about now. I assume this rate is a penalty rate associated with the Spanish drawing from the temporar...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.