It was a sign of just how bad Spain’s news had been in recent weeks, when the yield on Spanish ten-year bonds eased down on Monday on official news that Spain had returned to recession.

The cause for celebration was that Spain’s economy shrank by less than expected — declining by 0.3 percent in the first three months of this year according to a provisional estimate from the National Statistics Office. This was, thankfully, no worse (though no better, either) than the fall in the final three months of last year.

However, Monday’s confirmation that Spain is in recession has focused institutional investors’ minds on a key question: How much further are the country’s assets, buffeted by a breakneck succession of bad news, likely to slide?

The yield on ten-year Spanish government bonds closed at 5.80 percent on Monday — down 9 basis points (bp) from Friday, but 82bp above March’s opening level.

Despite the rise, some analysts think this a low interest rate to pay for the debt of a country that was on Thursday downgraded two notches by Standard & Poor’s to BBB+ — not far off junk bond status. Spain’s high and growing unemployment — a quarter of the workforce — also raises questions about its capacity to shrink its deficit, which was 8.5 percent of gross domestic product in 2011. Unemployment doubly widens the fiscal gap by depressing tax revenue and increasing government spending.

Investors may, therefore, start demanding a higher premium for holding Spanish debt — which is a relatively modest 1.67 percentage points higher than in January 2009, when S&P withdrew Spain’s AAA status.

If Spain’s sovereign debt yields rise further, bringing down the price of other Spanish assets, the 7 percent level may provide a back stop: This is the point at which analysts believe the European Central Bank is likely to intervene with aggressive buying through its Securities Market Program (SMP).

Yet many analysts think this may only provide a temporary respite for Spanish bonds. Despite heavy SMP buying in late 2011, yields for euro zone sovereigns only fell decisively in January, in the weeks after the ECB’s first three-year long-term refinancing operation (LTRO). ECB president Mario Draghi has signaled strongly that he is prepared to consider such measures again.