Relief about a rescue package worth up to $125 billion for Spanish banks started to wear off on Monday and the rally in financial markets faltered as investors worried about the details of the deal.
Stocks, including those of Spanish banks, were still in demand but the debt markets reversed earlier gains and the cost of insuring Spain’s debt rose.
Investors were worried about how the bailout, struck by euro zone financeministers over the weekend, would be financed and were also looking ahead to Greek elections on Sunday that could put Athens on a path to leaving the currency bloc.
That would then renew the market pressure on Spain and Italy, which is also facing scrutiny of its public finances.
“The EU is selling this as a ‘great victory’, but when you look at the details, this is a loan, and we don’t know yet where the money will be coming from. At the end of the day, it will increase Spain’s debt-to-GDP ratio no matter what they say,” said Steen Jakobsen, chief economist at Saxo Bank, in Copenhagen.
“The reaction in markets is due in part to people cutting short positions, and whether this rally will last 24 to 48 hours remains to be seen, with investors now bracing for Greece’s elections. We’re at midday and the euro and stocks are already trimming their gains.”