Rajoy's scandal fuels bailout fears - Miller Tabak

FXstreet.com (San Francisco) - Spanish prime minister Mariano Rajoy and his center-right Popular Party are engulfed by a corruption scandal. The plot on secret payments list has fueled concerns over government stability and has hurt confidence not only in Spain but the whole Euro area.

"Time for Spanish bailout?" The accusations "have sparked a dangerous jump in the cost of borrowing facing the government," points Andrew Wilkinson, Chief Economic Strategist for Miller Tabak. "Stock markets around the region, and not just in Madrid, plunged from the ledge landing on one side of the plank causing Spanish and Italian bond yields to spring higher in response. The move was a classic risk-off response to the first meaningful European crisis investors have witnessed in several months. "

European equities have reversed losses with Spanish and Italian equities recovering Monday loses. "Benchmark yields are also recovering having vaulted to the highest in around seven weeks. Spain’s 10-year yield is at its session low at 5.37%, down by 6bps on the day. Italian 10-year bonds are yielding 4bps lower on the session at 4.43%."