SPAIN paid almost 7% for 10-year money in a bond auction today, well above the level prevailing in the secondary market (6.43% last night, according to the FT). That gap may reflect the impact of ECB buying (the bank only buys in the secondary market). The sharp rise in yields may reflect the bad economic news (Spain's GDP stagnated in the third quarter and is now expected to grow just 0.8% next year) but it may also reflect uncertainty ahead of Sunday's election, given that the likely PM, Mariano Rajoy, has been rather vague about his programme.

You might think that high yields in the peripheral euro zone countries would attract bargain hunters but it doesn't seem to be the case. Cesar Perez of JP Morgan Private bank (himself a Spaniard) gave me a clue earlier this week; fund managers he talked to were unwilling to buy peripheral bonds of yields or 7-8% but they would buy at 4-5% The reason for this paradox is that, at yields of 7-8%, the finances of Spain and Italy look unsustainable (the same would be true of most developed countries). A fall in yields to 4-5% would, in contrast, be a sign that the crisis was over and an indication that both countries could get their fiscal houses in order.