Keep an eye on Spain - it's looking bad

Bond yields are climbing today, another worrisome sign that demand for Spanish debt is drying up - no matter what the interest rate is. That's bad because Spain needs to sell billions of dollars worth of bonds to repay its debt and cover its deficits. If they can't find any buyers, where will the money come from? Chart at the left shows yields on 10-year bonds. From MarketBeat:

Several factors are at work here. First is the market's continued negative view of Spain's European bailout for its banks. Many analysts warned that an admission by Spain that it cannot scrape together the needed funds to help its banks-in this case, up to €100 billion-would be tantamount to an admission that it does not have the money to help itself. Those predictions appear to be coming true. Second, a three-notch downgrade by Moody's last night, from A3 to Baa3, is a blow to confidence and, more importantly, another reason for asset managers who have mandates from clients to invest only in credit of a particular quality to sell the bonds.

There's also the election this weekend in Greece. If the parties opposed to extreme austerity measures get elected, there may be no choice but to exit the euro zone. And if that happens, the pressure in Spain will only intensify. As it is, Spanish banks have seen significant outflows of capital in recent days. These are truly worrisome developments, but the weird thing is how U.S. stocks are up solidly this morning. Up to now, every last belch to come out of Europe was treated with dread. Today, there are buyers.