Spanish markets see worst month since Lehman collapse

19:42, June 01, 2010      

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by Paul Mielgo

The Madrid stock exchange closed out May with its worst balance since the collapse of U.S. investment bank Lehman Brothers in October 2008, with its benchmark index falling 10.8 percent.

Fears of a Greek contagion and a lack of trust in the Spanish government's austerity plan designed to reduce the public deficit were the most harmful factors to Spain's markets in a month shadowed by the eurozone debt crisis.

Following the worst month in its history, the Ibex-35 index, a leading statistic among the major European markets, will start June with 9,359 points. It fell 0.7 percent in the last session, marking a yearly decline of 21.6 percent.


The Spanish stock exchange suffered in its last session from the downgrading of Spain's sovereign debt rating by the credit rating agency Fitch.

After the Spanish bourse closed on Friday, Fitch reduced Spain's solvency grade by one level, from the maximum AAA to AA+. The agency argued that the economic recovery would be "more moderate" than the Spanish government expects.

News of the rating cut was also felt in the debt market and pressure was kept on the country's risk premium. The yield on Spain's benchmark 10-year bond rose to 4.27 percent. The extra yield that investors demand to hold Spanish debt rather than German equivalents rose to 166 basis points.

Following Fitch's decision, now only Moody's keeps an AAA rating for Spain. Standard & Poor's downgraded Spain in April, becoming the first of the three main agencies to reduce the Spanish rating.

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