SPAIN’S borrowing costs have hit a euro-era record high after Moody’s announced it has downgraded the country’s debt rating to just one notch above ‘junk’ status.

Lenders are now demanding a higher interest rate with the yield on 10-year bonds soaring to an ‘unsustainable’ 7 per cent which has left many fearing a full blown bailout is on the cards.

Borrowing costs now stand at the same rate that saw Portugal, Greece and Ireland needing bailing out.

It comes after Moody’s cut Spain’s credit rating by three steps to one notch above ‘junk’ following this weekend’s €100 billion ‘recue plan’ for the banks.

It had been hoped the bailout would help calm fears in the financial markets however, Moody’s said the eurozone plan would increase the country’s debt burden.

The credit agency slashed Spain’s rating from A3 to Baa3 and said it could reduce this further within the next three months.

If Spain is cut to junk, it would mean some investors would be forced to sell the country’s bonds, pushing Spain’s financing costs even higher and increasing the risk that the country will need a full-blown bailout.

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