Spain’s borrowing cost at new highs
MADRID - Reuters
A traffic light is seen in front of the Bank of Spain in Madrid. The Spanish Treasury has sold 2.4 billion euros of the 12-month T-bill at an average yield of 5.074 percent. AFP photoSpain’s short-term borrowing costs rose to their highest level since 1997 in a debt sale yesterday as investors worried the country will soon be forced to ask for international aid.
The eurozone’s fourth-largest economy has become the focus of the regional debt crisis, with the country struggling to overcome recession and a costly banking sector restructure.
Yields on Spanish 10-year bonds have been trading above 7 percent, a level seen as too pricey for shaky public finances in the medium term by creating a self-full filling spiral like ones that have forced other euro governments to seek help.
The rise in Spain’s longer-term interest rates put the sale of 3 billion euros ($3.77 billion) of bills in the spotlight ahead of a bond auction tomorrow.
There was good demand and the government met its target amount but the yield on the 18-month paper was the highest since November while the 12-month bill sold with the highest rate since before the birth of the euro.
“The yields are over 5 percent in both lines which is back at the levels we saw in November 2011 when the market was in huge distress and the ECB was forced to intervene,” Credit Agricole rate strategist Peter Chatwell said.
Borrowing costs fell sharply after the European Central Bank flooded the market with around 1 trillion euros in cheap credit through two long-term refinancing operations (LTROs), in December and February, but they have since leapt back up.
Spain is hoping the ECB will ride to its rescue again. Officials have repeatedly said the central bank needs to take action to stop the euro zone debt crisis from getting worse.
Yesterday, the Spanish Treasury sold 2.4 billion euros of the 12-month T-bill at an average yield of 5.074 percent, compared with 2.985 percent at the last auction in May.
It sold 639 million euros of 18-month paper at an average yield of 5.107 percent after 3.302 percent last month. Spain will face a bigger test in financial markets tomorrow when it auctions bonds maturing April 30, 2014, July 30, 2015 and July 30, 2017.