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After a few previous attempts to cross the 7% mark, Spanish bond yields made the big breakout: 10 year bond yields are at 7.27% at the moment – a massive sell-off.

EUR/USD is already well below Friday’s levels after closing the gap that followed the Greek elections. It is now close to support.

The risk premium – the gap between benchmark German bunds and Spanish bonds is at a record of 5.81%. Also 2 year and 5 year bond yields are soaring as investors continue selling.

Recycling debt at these levels is definitely unsustainable. Other countries opted for a state bailout at these levels. Spain has opted for a limited bank bailout so far. It was initially estimated at 100 billion euros and was said to include a “buffer..

This is probably not enough. Immediately after the bailout was announced, at least 8 holes could be seen. Fresh estimates talk about 150 billion, only for banks.

If the Spanish sovereign needs a bailout, the sums are much higher –  several institutions already provided assessment of between 250 to 450 billion euros.

Spain went Irish by not allowing any banks to fall. Now its yields are also going Irish. Yields on 10 year Irish bonds are only 1% higher than Spain’s.

Euro at Support

The common currency enjoyed a positive weekend gap following the victory of pro-bailout New Democracy in Greece. However, as expected in the preview, this result doesn’t solve any problems.

It took the markets several hours to close the gap and fall from the highs of 1.2748 back to Friday’s close just above the 1.2624 line.

With the accelerated trouble in Spain, the 1.2624 line was eventually lost and the pair now finds support at 1.2587. The next line is 1.2540.

For more lines and analysis, see the Euro USD forecast.