The markets' relief from Greece's vote Sunday to try to remain in the euro swiftly faded under a cascade of bad news out of Spain that again rattled faith in the currency bloc's ability to support its faltering members.
New figures from Spain's central bank showed the country's lenders were sitting on the highest level of bad loans in 18 years and that their deposits continued to leak away, The Wall Street Journal reported. The grim numbers -- and worries that consultants scouring the creaky banking system will find yet more problems -- helped drive Spanish bond yields deeper into the unsustainable zone.
Data from the Bank of Spain showed that the non-performing loan ratio of Spanish banks rose to 8.7 percent of their outstanding portfolios in April - the highest in almost two decades, the Financial Times reported.
The eurozone has already promised €100 billion to help recapitalize Spain's banks, but investors are concerned it could merely increase Madrid's debt burden and eventually lead to a full sovereign rescue.
The yield on the Spanish 10-year bond hit 7.18 percent late Monday in London, a euro-era record for the zone's fourth-largest economy. The worrying signal demonstrates how Spain's troubles continue despite what plays out in Greece or elsewhere in the bloc. Itakian bond yields topped 6 percent
The Spanish stock market fell 3 percent Monday, and Italian stocks slid 2.8 percent.
Spain is likely to pay record high borrowing rates at debt auctions this week. Spain's Treasury will issue 2 billion to 3 billion euros ($2.52 billion-$3.79 billion) of 12- and 18-month debt on Tuesday and between 1 billion and 2 billion euros of bonds due in 2014, 2015 and 2017 on Thursday.
The euro stood at $1.2593 in Tuesday trading, having tumbled from a one-month high of $1.2748 in its worst showing in nearly three weeks.
The Greek election merely postpones a consideration of the underlying problems, Sushil Wadhwani, a hedge fund manager and former member of the Bank of England's monetary policy committee, told the FT. The markets are tiring of things that buy a little time and do not deal with the underlying, fundamental issues.