Spanish bonds lose ground Monday

MADRID, June 11 (UPI) -- Spanish bonds got more expensive for Madrid Monday after early optimism provided by a $125 billion international bank bailout faded.

For government funding, the rubber meets the road at the yield for 10-year benchmark government bonds, which fell -- lowering government costs -- early Monday, before climbing to 6.543 percent in afternoon trading, a pinch higher than Friday's close.

Bond yields drop when demand increases and prices rise. When demand is slack, yields turn higher, making it more expensive for the government to borrow.

Despite a $125 billion bank bailout, Spain's struggling economy will contract and unemployment will rise, prime minister Mariano Rajoy said.

"This year is going to be a bad one," he said at a short news conference Sunday after commentators and political opponents accused him of going into hiding since the rescue was announced by his economy minister Saturday.

"Growth is going to be negative by 1.7 percent and unemployment will increase," Rajoy said before flying to Poland to watch Spain draw 1-1 with Italy in the European soccer championship and lamenting he could not also be in Paris to watch Rafael Nadal play in the French Open tennis tournament.

Spain -- the fourth, and largest, of the 17 eurozone countries requesting a bailout -- is already in a double-dip recession, with unemployment topping 24 percent.

Rajoy, a conservative, blamed the crisis on the previous government of socialist Prime Minister Jose Luis Rodriguez Zapatero.

"Last year, the country's public administration spent more than 90 billion euros ($114 billion) than it received," he said. "You can't go on like that."

Rajoy critics point out the failing banks have strong ties to Rajoy and the current ruling People's Party.

Rajoy credited his party's leadership for paving the way for the bailout's limited scope.

"If we hadn't achieved all we have done over the past five months, then perhaps the entire country would have needed [full-fledged international] intervention," he said.

His comments followed a wave of global approval, with U.S. Treasury Secretary Tim Geithner, British Foreign Secretary William Hague and International Monetary Fund Managing Director Christine Lagarde hailing Spain's decision to request the loan.

The decision to seek aid came less than 24 hours after the IMF issued a 77-page report that found the Spanish banking sector suffering through a crisis "unprecedented in its modern history."

Less than two weeks ago, Rajoy insisted Spain didn't need a bailout.