Spain’s borrowing costs decline after cost cutting

MADRID - Reuters

Spain saw solid demand for medium- and long-term bonds yesterday, paying over 2 percentage points less to issue a 5-year bond than Italy this week, as Madrid’s cost cutting helped ease concerns it was the eurozone’s weakest link.

But while the Treasury also paid much less to sell two 10-year bonds than a similar issue just a month ago, yields were still near euro-era highs amid doubts over euro leaders’ ability to find a lasting solution to the bloc’s debt crisis.

“They managed to sell quite a chunk. In terms of pricing they came in substantially below secondary market levels,” strategist at West LB, Michael Leister said. “It won’t help to calm these fears everyone in the market is having about funding in 2012, but Spain is considered a far more attractive credit than Italy.”

The Treasury raised 6 billion euros ($7.77 billion) from the auction of three bonds in the primary market, far surpassing a target of 3.5 billion euros and meaning the Treasury has completed its end-of-year bond issuance goal.

Spain sold 2.5 billion euros of a bond maturing Jan. 31, 2016 at a yield of 4.023 percent, compared to 5.276 percent when it was last auctioned Dec. 1. The bond was two times subscribed after 2.8 two weeks ago.

The bond maturing April 30, 2020, sold 2.2 billion euros at an average yield of 5.201 percent while a bond maturing April 30, 2021 sold 1.4 billion euros for 5.545 percent.

The last time Spain ran a primary auction a 10-year bill Nov. 17, it paid an average yield of 6.975 percent, considered by most economists as unsustainable.