Spain's Prime Minister Mariano Rajoy

1550 BST: Wrap up

Right .. we're going to pick up the blog again tomorrow when European markets are in full swing again. We'll look forward to a lot of interesting "second-tier" data that's become increasingly relevant to the overall market: German regional inflation figures and overall retail sales, data on Spain's ongoing budget crisis and, not incidently, the impact its recession in having on consumer spending on the Spanish High Street.

Thanks so much for following along and have a good evening!

1530 BST: Fading to the close

European markets (the ones that are open for trading, at least) are starting to lose steam into the close of thin trading. Britain's FTSE 100 has given back its gains and has now dropped below 5,350 to trade negative on the session. We're seeing similar declines in Germany, France and Italy with the IBEX in Spain still the standout decliner, down a bit more than 2 percent. Stocks in Greece hasve staged an impressive comeback, with the benchmark Athens General Index rising nearly 7 percent to 518.23.

Benchmark bunds continue to set all-time low yield marks (2-years 0.27 percent and 5-years 0.421 percent) while the single currency is stuck at 1.2535, down around 0.25 percent on the day

1505 BST: Record high

Spain's benchmark 10-year bond yields hit an on-screen record today, according to data provide TradeWeb, changing hands at 6.47 percent and moving uncomfortably fast towards the 7 percent threshold that trigged bailouts for Portugal and Greece.

Spain's benchmark stock index, the IBEX, is also leading decliners this afternoon, giving back earlier gains for the morning session to trade 2 percent lower to 6,416, thanks to collapse in the shareprice of state-owned lender Bankia. Banks make up 7 of the 8 fastest-falling stocks on the exchange Monday after Prime Minister Mariano Rajoy said in a televised press conference that he would not be able to provide a total for any bank bailouts until a previously announced audit was completed sometime in the early summer.

His pledge that he would not allow any of the nation's 17 autonomous regions "to fail", along with vows to rescue and re-sell Bankia to the private sector, have raised investor concerns that Spain will not be able to meet its mounting financial needs as it borrowing costs surge. Bankia alone will require €19bn more than first anticipated and the immediate-term financing needs of the regions is estimated at €36bn.

1440 BST: No help

The European Central Bank opened calls for its normal 7-day refinancing operations (ie collateralised lending at 1 percent; the Bank expects to lend around €950bn) and says it will mop-up excess liquidity in the market with a one-week deposit tender tomorrow.

Interestingly, it said its Securities Markets Programme (SMP) added nothing to its current €212bn total in the past two weeks, meaning peripheral spread improvement last week was purely devoid of central bank activity - which might explain why the spreads/yields of Italian and Spanish government debt have backed up so quickly this week.

1425 BST: Little changed

The FTSE Eurofist 300 has pared its modest gains for the session and sits little changed at 984.87. The monthly decline for the broadest measure of European blue chips is 6.05 percent.

Bund yields are also falling, athough there's no specific newsflow that seems to be accelerating the decline. Germany's benchmark two-years Schatz is now trading at an all-time low 0.27 percent. Germany can now borrow from the markets, deposit overnight at the ECB and pick up 22 basis points.

1410 BST: Back patting time

IFR publishes a short piece confirming (well, sort of) an observation I had about the markets a couple of weeks ago:

0945 BST: It's troubling, however, in terms of transparency. If (and it's a long way from being so) CDS prices become more reflective of day-to-day risk valuations than share prices, ordinary investors (and the rest of the investing world outside of the cadre of banks which control CDS pricing) will find it increasingly difficult to gauge value. Opaque markets aren't the best places to establish value in assets as critical to the global economy as these are becoming.

1243 BST: No fail

Rajoy says will not allow Catalonia, or any autonomous Spanish region, to fail. Says Catalonia (wealthiest of the 17, accounting for around 20 percent of Spanish GDP) "not broke" but has liquidity problems.

Also says has taken no decisions on how to fund Bankia rescue, but says funding that rescue will not affect deficit.

1240 BST: policy shift?

Rajoy says government studying how best to inject public funds into banks. Previous statements had promised "no public funds" in the country's banking reform plan.

1235 BST: More sureality

Prime Minister Rajoy says once Bankia is recapitalized (with government debt?) the bank will be sold and the State's investment recovered once the bank has been "cleaned up".

Bankia shares today traded 14.9 percent lower today, *after* news of the recapitalization plan, to an all-time low €1.33. The bank's market cap is now €2.6bn. The government's to-date rescue costs are €23.5bn and rising.

It's getting increasingly difficult to take this press conference seriously.

1225 BST: Rajoy on total rescue costs

Prime Minister says can't provide total figure for state bank rescues until audit is completed - but reiterates pledge that there will not be any external rescue of Spanish banks.

With the cost of Spanish borrowing and the need to support the €36bn financing needs of the region, it seems impossible to take that pledge at face value - as well intentioned as it may be.

1220 BST: Rajoy on Bankia

Prime Minister says he doesn't think Bankia rescue (which will cost around €23.5bn) has influenced risk premium on Spanish government debt. Markets (which have added 46 basis points to 10-year government bonds since late Thursday) would disagree.

Spain's credit default swap prices were seen as high as 552 basis points this morning, nearly 100 basis points higher than levels seen in the middle of last week.

1215 BST: More from Rajoy

Prime Minister says it's becoming increasingly difficult to refinance public debt with such a high premium in the market (as of today, it's at a Eurozone record 5.05 percent over German Bunds) and says the country's debt sustainability must be resolved. He's also called for a "decisive and clear" move to ease global concerns about the viability of the single currency.

1210 BST: Rajoy speaking

Spain's Prime Minister reiterates the importance of debt reduction and says failure to do so will put capital market access for Spain (and, one assumes, the banks and the regions) at risk. He pledges reforms to make the economy more competitive alongside his plans for debt and deficit reduction.

1145 BST: Potenital fireworks

On a very quiet day: Spain's Prime Minister Mariano Rajoy will hold a press conference in Madrid at 1300 CET. Likely questions will focus on aid for the regions, bank recapitalisation plans and how his government will manage to stabilize a rising budget deficit in the face of slowing economic growth and mounting unemployment. Should make for some interesting replies!

1040 BST: European rate cut?

The single currency has slipped to 1.2575 against the US dollar this morning after a finding a decent amount of bids throughout most of the overnight session in Asia. Aside from the myriad problems it faces on a fundamental value basis, it seems traders are starting to factor-in a possible cut in the European Central Bank's key lending rate from the current 1 percent.

Interbank lending costs around Europe, in the form of 3-month Euribor rates, have fallen to a two-year low of 0.673 percent Monday. A huge portion of that downward move, of course, resulted from the ECB's twin LTRO injections, which have added around €1tn in interbank liquidity (€750bn of which, sadly, has round-tripped its way back to the ECB's overnight deposit facility). In other words, banks are happier to borrow at 1 percent from the ECB and deposit that cash at a 0.25 percent rate as opposed to lend it out into the broader economy.

This suggests the fall in Euribor rates may be a better reflection of key lending rate moves (downward) than one of an increasing desire to provide funding to rivals.

1025 BST: Italy bond auction

Italy's borrowing costs surged again this morning after a €3.5bn sale of 2-year "zero coupon" (CTZ) bonds attracted a gross yield of 4.037 percent, the highest since December of last year and around 49 basis points higher than in a similar sale in April. Investor demand, as measured by the auction's "bid-to-cover" ratio was 1.656, meaning around €1.6 was bid for every €1 on offer by the Italian treasury. That's weaker than the 1.79 recorded in April.

Germany's €4.6bn sale of zero coupon bonds last week drew a yield of 0.07 basis points.

Italy also sold small tranches of 2016 inflation-linked bonds (€418m) at 4.39 percent and €333m of 2017 bonds at 4.6 percent.

0940 BST: Spanish practices

A big move in Spanish government bonds this morning as benchmark 10 year yields rise nearly 20 basis points to 6.50 percent in the wake of Friday's €23.5bn Bankia rescue tab and weekend reports that Spanish debt will be used in the recapitalization of the country's fourth-largest lender. Added to the pressure, of course, is the funding difficulties of Spain's semi-autonomous regions, most acutely Catalonia, which Friday asked for support in re-financing its €13bn 2012 borrowing needs.

The extra yield (spread) investors now demand to hold Spanish debt instead of triple-A rated bunds surged to a Eurozone record 505 basis points. Credit default swaps on Spanish debt were last seen marked at 510 basis points, indicating a €510,000 annual cost to insure €10m bonds from default. That's €60,000 increase from last week.

0905 BST: Italian confidence

Italian Business confidence fell to the lowest in three years in May, the National Statistics Office said Monday. Italy's year long recession is eroding demand and crimping orders, the office said, as it published the headline survey figure of 86.2 (down from 89.1 in April and a full 12 points lower than readings from last summer).

Ten year Italian government bonds are 6 basis points higher at 5.87 percent this morning.

0855 BST: quiet march

European stocks are looking firm this morning, but seem to be lacking great conviction. The FTSE Eurofirst 300 is up around 7 points (0.74 percent) to 992.3 but isn't being driven by specific newsflow (absent the ever-changing poll data in Greece). The DAX is the strongest performer of the morning so far, rising 82 points, or 1.3 percent, to 6,422.27. Given the weakening macro-economic climate in both of Germanys principal export markets (broader Europe and emerging Asia) today's rally feels less fundamental and more reflective of the day's holiday-thinned volumes.

0825 BST: random - but topical -observation

I'm sure most readers have seen the latest rumours from Spain suggesting the government may use its own debts to help recaptialize the corroded balance sheet of newly-rescused lender, Bankia, which last week said it woudl need around €19bn in taxpayer cash to stay solvent.

Part of logic for the move, from the Spanish government's perspective, is that it offers a "two birds with one stone" strategy: it allows Bankia to recapitalize but it also permits the bank to access ECB funding lines using the highly-rated debt as collateral. Thus the bank's capital *and* liquidity issues are solved at a stroke.

Now ... let's exmaine this in more detail and consider the breezy description most media outlets are using to describe the "value proposition" of owning Spanish government bonds: they can be lodged at the ECB in exchange for cheap cash. In other words, the bonds are a form of money. Perhaps not as efficient. Perhaps not as fast. Perhaps not as valuable (they'll be haircutted). But money nonetheless.

So .. the next time the same media outlets tell you that central bank purchases of those very bonds (or others like them) through programmes of quantitiative easing are "printing money", don't believe them. We've just established that the bonds are "quasi money" that facilitate economic transactions (just like cash). In fact, the bonds *will* be exchanged for cash, just at a discount to face value. And they'll be sent back to Bankia at a future date).

No media outlet is calling *this* printing money, are they?

Yet if the ECB, or the Bank of England or the US Federal Reserve were to purchase the bonds outright (under the explicit terms that the would be sold back to the market at a future date) we'd get the howling protests of the "money printing" Cassandras and the dire predictions of hyperinflation, market distortions and dogs and cats living together.

Spending in an economy that's running a deficit is, by definition, done with printed money. Governments don't wait for a 10-year bond auction to pay teachers and nurses: they credit the accounts first and balance the books later with the inflow of cash from capital market activity that seeks to fill the gap between outgoing payments and incoming taxes.

So the paper (bond) that represents that gap *is* printed money. It's no more so when it's bought by the central bank.

0805 BST: Cautious start

Brtian's FTSE 100 ticks 0.3 percent higher at the opening bell with stronger gains in Spain, Italy and France. The FTSE Eurofirst 300 added 0.5 percent to trade at 989.57 in the opening minutes.

The Euro is around 0.4 percent higher this morning trading at 1.2620 against the US dollar while government yields are marginally higher across the board for triple-A rated Germany (1.39 percent for 10-year bonds) and the UK (1.83 percent). Spanish benchmark 10-year bonds are marked at 6.27 percent while similar Italian bonds are trading at 5.78 percent.

0750 BST: Good Morning!

European markets are set for a cautious opening this week as investors continue to sift through headline risk related to the 17 June election in Greece and the ongoing financial turmoil in Spain. Volumes could be thin, however, owing to the Memorial Day Holiday in the United States, which will keep Wall Street closed until Tuesday. In fact, with next week's two-day holiday in the United Kingdom to mark the Diamond Jubilee celebrations of Queen Elizabeth II, investors will be dealing with liquidity gaps for the next fortnight amid some of the most significant market turmoil in at least five years.

Overnight trading in Asia began cautiously, but appears to have ended without a great deal of conviction, as the MSCI Asia Pacific Index drops around 0.26 percent to trade at 111.65. For the month, the broadest measure of Asian share performance is down around 11 percent, marking the steepest decline since October of 2008.

Opinion polls in Greece show a substantial 5.7 percent lead for pro-bailout conservative party New Democracy over Syriza, the anti-bailout left headed by Alexis Tsipras. Reports over the weekend suggest Spain will attempt to recapitalize its state-rescued lender, Bankia, with Spanish government debt as opposed to new capital raised in the bond markets.

Financial bookmakers are calling for a 0.5 percent rise in European markets to kick-off the session.