Spain's borrowing costs rise sharply in bond auction

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IANS/EFE | 18 May, 2012
Spain's Treasury auctioned 2.5 billion euros ($3.18 billion) worth of bonds maturing in 2015 and 2016 Thursday, but was forced to pay sharply higher interest rates.

The bond sale came amid rising tensions in the eurozone over the political and economic crisis in Greece, where new elections will be held June 17 after failed negotiations to form a coalition government.

Demand outstripped supply in the auction by nearly three to one.

The Treasury sold 371.76 million euros of bonds maturing on Jan 31, 2015, at an interest rate of 4.42 percent, up from 2.96 percent in the previous auction.

Another 1.02 billion euros worth of bonds maturing on July 30, 2015, were placed at a borrowing rate of 4.92 percent, compared with 4.07 percent May 3.

Meanwhile, 1.1 billion euros of bonds maturing April 30, 2016, were sold at an interest rate of 5.13 percent, compared with 3.43 percent in the previous issue.

Thursday's auction was the first since Spain's debt-risk premium briefly surpassed the 500-basis-point barrier Wednesday before ending the session at 482 bps.

On Thursday, the debt-risk premium - the extra return investors demand on Spanish government bonds compared to safe-haven German debt - rose again to 490 basis points before retreating back to around 483 bps.

The yield on Spain's benchmark 10-year bond - used to determine the debt-risk premium - fell on the secondary market to around 6.33 percent after the auction.