Bloomberg News

Spain Beats Target at Bill Auction as Borrowing Costs Fall

January 24, 2012

(Updates with historic yield on second paragraph, bond reaction in fith. For more on Europe’s debt crisis, see {EXT4 <GO>}.)

Jan. 24 (Bloomberg) -- Spain sold 2.51 billion euros of bills ($3.26 billion), just above its maximum target for the sale, as a surge in demand helped bring down borrowing costs.

Spain sold three-month bills at a rate of 1.285 percent, the Bank of Spain said, the lowest since March and down from 1.735 percent when the securities were last sold on Dec. 20, the day before Prime Minister Mariano Rajoy took over. It sold six- month bills at 1.847 percent, compared with 2.435 percent.

Demand for the three-month debt was 4.32 times the amount sold, compared with 2.86 times at the auction last month. That ratio on the longer-dated bills rose to 6.87 from 4.06. The Treasury aimed to sell as much as 2.5 billion euros of bills.

Spain sold short-term debt for the second time since the People’s Party government came to power in December and pledged to implement budget cuts and an overhaul of the banking system and labor market. Still, the economy is set to shrink 1.5 percent this year, the Bank of Spain said yesterday, and Budget Minister Cristobal Montoro has urged the European Union to ease a deficit target that would force Spain to cut its shortfall by almost half in one year.

The yield on Spain’s benchmark 10-year bond rose after the auction to 5.472 percent, from 5.467 percent before the sale. The spread over German bunds of the same maturity was 349 basis points, compared with 346.9 basis points before the sale and 348.9 basis points yesterday.

--Editors: Jeffrey Donovan, Andrew Davis

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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


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