Is Spain the New Lehman?

Spain has warned financial traders betting against its debt that they will lose money, in a defiant challenge to the markets which are driving Madrid’s cost of borrowing sharply higher.

José Luis Rodríguez Zapatero, Spanish prime minister, on Friday ruled out any rescue package for the country even as the premiums demanded by investors to hold Spanish sovereign debt over that of Germany’s rose to euro-era highs.

This week’s sharp rise in Spanish 10-year bond yields to 5.2 per cent is an indication of growing concern in eurozone bond markets that the fiscal crisis in Ireland could spread to other debt-laden countries including Portugal and Spain.

“I should warn those investors who are short selling Spain that they are going to be wrong and will go against their own interests,” Mr Zapatero said in an interview with Barcelona-based broadcaster RAC1, according to Bloomberg. He “absolutely” ruled out any need for a rescue.

Talk about blood in the water…