May 31 - Bond yields in Germany reach zero and Austria and France are at record lows since the inception of the common currency, while Spain's borrowing costs remain dangerously high. Joanne Nicholson reports.
At first the safe haven seemed to be only Germany. Borrowing costs dropped to zero percent for two-year bonds. But now the demand for a good bond yield has spread into Austria and France too. They're at their lowest level since the birth of the Euro 13 years ago. And, says one Frankfurt trader, it's all because of what the markets think of Spain right now: (SOUNDBITE) (German) FIDEL HELMER FROM HAUCK & AUFHAEUSER, SAYING: "Spain is in a very precarious situation. They have their highest ever level of unemployment. The gross national product (GNP) is falling and if they now have to get hold of money on the markets at higher interest rates, then this will not necessarily promote the productivity." While trading in Europe remained steady, Spain's borrowing costs are at dangerously high levels and many analysts feel they're unsustainable. Ten year bonds are at almost seven percent. There are worries Spain is going to need outside help with its ailing banking system, after part-nationalised Bankia said it needed a 23 and half billion euro rescue. Jose Carlos Diez, a financial analyst in Madrid, says Spain isn't entirely to blame for the crisis. (SOUNDBITE) (Spanish) JOSE CARLOS DIEZ, FINANCIAL ANALYST, SAYING: "Since 2010 the main points of tension in Spain mostly come from abroad, mainly from Greece, but they don't affect France or Holland, so Spain has an idiosyncratic risk. Now the euro looks set for its biggest fall since September as the storm clouds of Spain and Greece gather. And there's no sign of an end to the market turmoil any time soon. There's another three weeks before investors will find out whether Greek voters want a pro-bailout government. Joanne Nicholson, Reuters