Bloomberg News

Spain Sells 4.45 Billion Euros in Debt as Yields Surge

July 19, 2011

(Updates with yields, demand starting in second paragraph.)

July 19 (Bloomberg) -- Spain sold 4.45 billion euros ($6.3 billion) of treasury bills, just below its maximum target, and its financing costs surged as European leaders struggled to find a solution to the Greek crisis.

The Treasury in Madrid said it sold 3.79 billion euros of 12-month bills at an average yield of 3.702 percent, compared with 2.695 percent the last time the securities were sold on June 14. It also issued 661 million euros of 18-month debt at an average yield of 3.912 percent, compared with 3.26 percent last month. It was aiming to sell a maximum of 4.5 billion euros.

Demand for the 12-month bills was 2.18 times the amount sold, compared with 2.85 last month, and the bid-to-cover for the longer-maturity debt was 5.49 times, compared with 3.91.

Spanish and Italian borrowing costs climbed to the highest since the start of the single currency yesterday amid discord among European policy makers over whether private investors should contribute to a second Greek bailout. As growing expectations of a Greek default push up Spain’s borrowing costs, Prime Minister Jose Luis Rodriguez Zapatero urged European leaders last week to solve the crisis without involving Greece’s creditors.

Spain didn’t sell debt last week, as yields surged following credit-rating downgrades of Greece and Ireland. The Treasury plans to sell as much as 2.75 billion euros of 10-year and 15-year bonds on July 21.

Spain’s 10-year bond yield fell to 6.17 percent today, below yesterday’s intraday record of 6.37, the highest in the euro’s lifetime and more than twice what Germany pays to borrow for the same period.

The gap between Spanish and German borrowing costs narrowed after the sale to 346 basis points from as wide as 368 before the auction. The spread reached a euro-era record of 376 basis points on July 12, compared with an average of 15 basis points in the first decade of monetary union.

--With assistance from Charles Penty in Madrid, Editor: Jennifer M. Freedman, Jeffrey Donovan, Simone Meier

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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