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.

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