Spain's Borrowing Costs Soar

Spain continued to find itself in the market's cross hairs Thursday, as mounting concerns over the economy sparked a sharp slide in the country's bonds and led to an evaporation of the effect of the European Central Bank's generous cash injection, The Wall Street Journal reported. The rout in Spanish bonds weighed heavily on financial markets, with the euro coming under pressure, stocks falling and Italian bond yields rising sharply. Spanish borrowing costs are now at levels last seen before the first of the ECB's two long-term refinancing operations, or LTROs, which have been widely credited with soothing Europe's sovereign debt crisis. A miserable Spanish bond auction Wednesday highlighted fraying investor confidence in the country's economy, with unemployment rampant, the debt burden climbing and the government's ambitious budget cuts likely to further crimp already weak growth. Spain expects the ratio of the country's debt to gross domestic product to climb to 79.8% in 2012 from 68.5% last year. A stuttering economy could push debt levels even higher, while there are still question marks over the government's ability to reduce debts in the face of rising public anger at austerity measures. The latest rise in yields could mark a crucial phase in the debt crisis. The ECB's liquidity operations helped ease tensions in the euro-zone periphery as domestic banks gorged on cheap funds to snap up higher-yielding bonds. With the impact of the LTROs now starting to fizzle out, it remains unclear where Spain and Italy will find continued demand for their bonds. Read more. (Subscription required.)