Spanish yields firmly above 7% sends euro lower & markets into reverse – spanish equities now down 5%

European shares fell from their recent highs as Spain’s borrowing costs once more climbed back above the key 7 percent pain threshold on Friday and Valencia – one of its heavily indebted regions called for aid.

Ibex 10 day chart

Euro zone finance ministers formally agreed a memorandum of understanding which will allow Madrid to borrow up to 100 billion euros to recapitalise its banks. But the euro and European stocks extended losses after the Valencia region said it would seek central government help to repay debt.

Oil prices also eased after hitting an eight-week peak on supply concerns linked to rising Middle East tension, but the rally in soft commodities, which has seen corn and soybean prices soar to record highs, showed no signs of abating.

In stark contrast, investors are now paying for the privilege of holding shorter-dated government debt of perceived safe havens such as Germany and France as yields turned negative once more and sosuggesting a continued high degree of nervousness about the euro zone debt crisis.

Concerning the Spanish situation which seems to be snowballing by the day and resembling the historic partterns seen in Portugal, one bond trader said “To me it’s only a matter of time before it goes for the full bailout.” If this were the case expect a very sharp knee jerk reaction to the downside in Global markets as Italy is finally, and perhaps inevitable, put into the speculators sights.

The single currency dropped to record lows versus the Canadian and Australian dollars.