Bloomberg News

Spain Sells Less Than Maximum Target as Yields Surge at Auction

November 16, 2011

Nov. 15 (Bloomberg) -- Spain sold 3.16 billion euros ($4.3 billion) of bills, below its maximum target, and its financing costs surged as the country’s benchmark bond yields approached a euro-era record.

The Madrid-based Treasury said it sold 12-month debt at an average yield of 5.022 percent, compared with 3.608 percent at an auction on Oct. 18. It sold 18-month paper at 5.159 percent, up from 3.801 percent last month. The yield paid today to borrow for a year is more than Spain’s 10-year bond yielded on Oct. 10.

Demand for the 12-month securities was 2.13 times the amount sold, compared with 2.3 last month, and the bid-to-cover for the longer-dated paper rose to 5.96 from 4.26. The Treasury aimed to sell as much as 3.5 billion euros.

Spain’s Socialist government, which faces a general election on Nov. 20 that polls signal it will lose, is battling record borrowing costs as growing expectations that Greece may default caused contagion to other highly indebted nations in the euro area. The cost of insuring Spanish bonds against a default rose to a record after German politicians yesterday discussed the prospect of nations leaving the currency bloc.

The extra yield on Spanish 10-year bonds compared with German equivalents rose to a euro-era high of 450 basis points today. The bonds yielded 6.23 percent after the auction, approaching the euro-era record of 6.46 percent on Aug. 2, before the European Central Bank started buying Spanish debt to support the market.

‘Heavy Load’

German Chancellor Angela Merkel’s Christian Democratic Union voted yesterday to offer members a way of leaving the euro voluntarily, raising the prospect of the bloc splintering. Finance Minister Wolfgang Schaeuble said that while his government wants Greece to remain in the club, it would respect any decision to leave.

“We want Greece to stay in, that everybody stays in,” he said in an interview from Leipzig yesterday with broadcaster Phoenix. “But if a country can’t carry the burden or doesn’t want to carry the burden, and the Greek people have to carry a heavy load, then we have to respect the country’s decision.”

As technocrats take over the governments of Italy and Greece and prepare to reorder the indebted nations’ finances, Spaniards may hand the opposition People’s Party the largest majority any party has won since 1982 this weekend, polls show. PP leader Mariano Rajoy has pledged to slash the deficit by about a third to 4.4 percent of gross domestic product next year, though he hasn’t said where the ax will fall.

--With assistance from Angeline Benoit in Madrid and Colin Keatinge in London. Editors: Jennifer M. Freedman, Andrew Davis

To contact the reporter on this story: Emma Ross-Thomas in Madrid at

To contact the editor responsible for this story: Craig Stirling at

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