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Credit Insights

The Rumors Were True: Eurogroup Agrees to Provide Loans to Recapitalize Spanish Banks

We continue to favor U.S. corporate bonds over European corporate bonds.

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This time the rumors were actually true. On Saturday, the Eurogroup released a statement that it would provide as much as EUR 100 billion in financial assistance to Spain in order to recapitalize the country's banks. The move is predicated on the Spanish government formally requesting the loan later this month. The final amount of financial assistance will be based on the recommendations of the external evaluators hired by the Spanish government to analyze and value the loans held by Spanish banks. The loan will be extended to the Fund for Orderly Bank Restructuring, Spain's existing bank bailout fund; however, it will be an obligation of the Spanish government and will increase the country's debt/GDP ratio.

Monetary Authorities Holding Policy Steady to Force Politicians to Act
For the week, the Morningstar Corporate Bond Index and the Morningstar Eurozone Bond Index both tightened 7 basis points to +217 and +240, respectively. In addition, the yield on the 10-year Treasury bond rose 17 basis points off its historic low to 1.64% as the flight-to-safety trade abated. Credit markets started the week on a rough note, but began to recover Wednesday morning and continued to strengthen throughout the rest of the week.

David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.