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Spain leaps debt hurdle on rescue hopes

Thursday, October 04 12:31:31

Spanish borrowing costs mostly fell at a bond auction today but uncertainty over whether the government will ask for an international bailout means they could rise again soon.

The Treasury managed to meet the top end of its 3 billion to 4 billion euro target for the auction, showing investors still have appetite for the country's debt in the belief a rescue package will come soon. The yield on the 2014 bond was 3.282 percent after 5.204 percent when it was last sold on July 19. The 2017 bond sold at an average yield of 4.766 percent, compared with 6.459 percent the last time it was sold on the same date in July.

The 2015 bond yield edged up to 3.956 percent, however, compared with 3.845 percent when it was last sold on Sept. 20, indicating lingering concern over when Spain would ask for help. Spain is at the sharp end of the euro zone debt crisis as it weighs applying for an aid package that would pave the way for the European Central Bank to buy its bonds. In contrast France easily sold close to 8 billion euros of bonds today

Spain's debt yields soared over the summer and then fell sharply in August after the ECB announced a bond-buying programme designed to bring down Spain's financing costs and those of other struggling euro zone states.

That kept things in check at bond auctions today.

"There is a natural demand given the expectation that at some point Spain will request a sovereign bailout and the ECB ... will buy short-dated bonds," said Nick Stamenkovic, bond strategist at Ria Capital Markets.

Two of the bonds sold would come under the ECB's bond buying programme. But demand was decent for all of the bonds sold, including the five-year bond, and increased from their last sales. On the secondary market, the spread between Spain's benchmark 10-year bond and the German benchmark, which measures the perceived risk of investing in Spain, widened by 10 basis points to 446 basis points compared with Wednesday's close.

On Tuesday, Prime Minister Mariano Rajoy said a European bailout package was not imminent, following a Reuters report that said Spain was ready to call for aid but that Germany was urging the country to wait. (C ) Reuters