Borrowing costs tumble for Spain in debt issue

MADRID - Agence France-Presse

A trader gestures to a collegue at the Spanish Stock Market in Madrid. EPA photo

Spain’s short-term borrowing costs tumbled yesterday as it raised 4.51 billion euros ($5.6 billion), buoyed by the possibility of European Central Bank intervention.

The Treasury raised the cash in a sale of 12- and 18-month bills, enjoying a lull in interest rates following ECB chief Mario Draghi’s comments that the bank may resume bond purchases if necessary.

Compared to a similar sale on July 17, the 12-month rate slumped to 3.070 percent from 3.918 percent and the 18-month rate dropped to 3.335 percent from 4.242 percent, Bank of Spain figures showed.

Demand outstripped supply by more than two-to-one, allowing the Treasury to exceed its target range of raising 3.5-4.5 billion euros.

Despite tens of billions of euros in spending cuts to rein in a bulging public deficit, Spain’s borrowing costs this year have climbed to danger levels and prompted speculation of a full-blown bailout.

The eurozone has already agreed to extend a rescue loan of 100 billion euros to secure Spain’s lenders, which have been staggering under a pile of bad loans from a construction boom that went bust in 2008.

Interest rates have eased somewhat recently, however. The ECB’s Draghi sparked a market rally on July 26 when he promised that the bank for the 17 nations using the euro was ready to do “whatever it takes” to preserve the euro.

Hopes for dramatic ECB action eased somewhat when Draghi later said only that the bank “may” resume bond purchases.