Moody Cut Sends Spanish Bonds to Dangerous High

Spanish bond yields hit a whopping 7% today, after Moody's cut the country's credit rating to just one level above "junk" yesterday. The New York Times ominously notes that the 7% mark is the level that "triggered" full-blown bailouts of other eurozone countries. Moody's said Spain's recent bailout—which was supposed to boost confidence—will increase the country's debt burden, the BBC reports. If the rating falls any further, many index funds will be forced to sell, sending the country's borrowing costs even higher. "The risk of losing investment grade" pushed the spreads to "historic highs," one analyst explains.

Italy's borrowing costs shot up, too, from 3.9% to 5.3%. "We certainly know Italy will have to pay higher yields to attract market demand," an analysis firm tells the Wall Street Journal. The current spreads "are certainly not reflecting the fundamental picture for the country, which, although in the middle of a recession, is not broke." (More Spain stories.)