Spain's economy is sinking deeper into recession, experts agree that the country will miss its budget targets for the year and several European Central Bank (ECB) officials have said Spain urgently needs a bailout, yet the bond market is dancing to a completely different tune.
Spain's 10-year bond yield remains below 6 percent, 2-year yields are hovering around 3 percent and the benchmark stock index has rallied 8 percent over the last three months.
According to Nicholas Spiro, managing director of Spiro Sovereign Strategy, the market is doing the bidding of Spain's Prime Minister Mariano Rajoy who has so far avoided asking for a bailout from the European Union despite a deteriorating economic picture.
Ever since the ECB announced its unlimited bond-buying program, the bond market has been hesitant to bid up Spanish bond yields for fear of central bank intervention. In fact, at the current yields, Spain has managed to complete its funding requirements for the year.