The judgement from markets on the Spanish bank bailout has been mixed, with some of the initial positive moves having been subsequently reversed. The single currency has mostly been sold after the early high of 1.2671 in Asia trade. There is talk of offers building at the 1.27 area, but EUR/USD is now below 1.26. A similar pattern has been seen in bond markets and although yields are generally lower than Friday’s closing levels, the brief nudge below 6.00% is now a distant memory as yields near 6.15% on the 10 year bond.
As with most co-ordinated policy efforts in the eurozone, they serve more to prevent a melt-down, rather than map-out a definitive pathway to the exits. But there also remains a considerable amount of uncertainty regarding the deal outlined over the weekend, not only on the amount of assistance being sought, but also on where it will come from (the new ESM, or the EFSF). The Spanish government are keen to point out that this is a bailout for the banks, not the government. But as with Greece (where it was the other way round), the interdependencies between the two are becoming ever closer and the bond markets are right to be concerned about this.