14.06.2012

By Simon Miller

Spanish bonds have soared to a new euro-era high after Moody’s downgraded the country to near-junk status.

It's ten-year yield opened at 6.83200 it has hit a high of 6.96500 and is currently trading at around 6.958 (09.44 BST) after Moody’s joined Fitch in downgrading Spain’s rating from A3 to Baa3 just one notch above non-investment, or junk, status.

Moody’s said that the €100bn (£81bn) bailout agreed at the weekend would simple increase Spain’s “debt burden, which has risen dramatically since the onset of the financial crisis”.

The rating note added: “The Spanish government has very limited financial market access, as evidenced both by its reliance on the European Financial Stability Facility or the European Stability Mechanism for the recapitalisation funds and its growing dependence on its domestic banks as the primary purchasers of its new bond issues, who in turn obtain funding from the ECB.”

Moody’s added that the Spanish economy's continued weakness “makes the government's weakening financial strength and its increased vulnerability to a sudden stop in funding a much more serious concern than would be the case if there was a reasonable expectation of vigorous economic growth within the next few years”.