Spain’s borrowing costs soared today after Fitch downgraded 18 domestic banks a day after cutting its credit rating for the country’s two largest lenders, Reuters reported.
The euro zone’s fourth-largest economy has agreed to a 100 billion euro ($125 billion) international bailout for its troubled banking sector, but investors are worried that the capital injection won’t be enough to resolve the country’s woes.
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According to the Associated Press, the yield on Spain’s 10-year bonds rose to 6.81 percent in afternoon trading, which is the highest level since Spain started using the euro.
The yield is a measure of confidence in the borrower’s ability to repay the loan – a higher yield indicates investors attach greater risk to the bond.
Fitch’s decision to downgrade 18 banks, including Bankia, which recently requested a 19 billion euro government injection to keep it afloat, came a day after it cut the ratings for the country’s two largest lenders, Banco Santander and Banco Bilbao Vizcaya Argentaria.
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The ratings agency last week downgraded Spain’s sovereign credit rating to just above junk status.
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According to Agence France-Presse, Fitch said the latest ratings action was the result of "the potential for the loan portfolios of certain banks to deteriorate further."
"This is particularly true for those banks whose loan books are heavily exposed to the construction and real estate sectors, and those with low equity bases."