Spain raises 2.59 bn euros in bond sale

April 5th, 2012 - 11:57 am ICT by IANS  

Madrid, April 5 (IANS/EFE) Spain’s Treasury raised 2.59 billion euros ($3.4 billion) Wednesday in an auction of bonds maturing in 2015, 2016 and 2020, but paid sharply higher interest rates on the debt compared to the previous sale.

Wednesday’s auction was the first since last week’s unveiling of the government’s 2012 budget, which includes 27.3 billion euros worth of tax increases and spending cuts to reduce the public deficit from 8.5 percent of gross domestic product last year to 5.3 percent of GDP in 2012.

The budget is considered the most austere since the restoration of Spanish democracy in 1977.

Of the 2.59 billion euros raised Wednesday, 1.13 billion euros came from the auction of a three-year bond at an interest rate of 2.96 percent, compared with 2.41 percent in a March auction.

The Treasury placed another 973 million euros worth of bonds maturing in 2016, paying a rate of 4.37 percent, up from 3.48 percent in last month’s sale of that four-year debt.

The remaining 489 million euros came from the sale of bonds maturing in October 2020 at an interest rate of 5.36 percent, up from 5.19 percent in the previous issue.

The total raised was near the lower end of the Treasury’s projected range of between 2.5-3.5 billion euros. Demand outpaced supply by 2.5 times but the bid-to-cover ratio on the three-year and four-year bonds was lower than in a March auction.

Wednesday’s bond sale ended a streak of more than a dozen auctions in which the Spanish Treasury had managed to pay steadily lower interest rates on its debt.

Investors’ concerns about Spain’s financial woes and its ability to bring its deficit in line with European Union mandates also were seen in the secondary market, in which the yield on Spain’s benchmark 10-year bond climbed sharply to 5.53 percent following the auction.

That meant Spain’s debt-risk premium - the extra return on Spanish government bonds compared to safe-haven German debt - rose Wednesday to 373 basis points, up 10 points from the market opening.

The EU says Spain must reduce its deficit to 5.3 percent of GDP this year and to 3 percent in 2013, as required by the European Stability Pact.

Finance Minister Cristobal Montoro said Tuesday in providing details on the austerity budget that Spain is in a “critical situation” due to the cost of financing its economy.

Spain’s government estimates that it will allocate 29.25 billion euros, or 2.75 percent of GDP, to paying interest on its debt and covering new financial obligations.

Spain’s public debt is projected to rise from 68.5 percent of GDP in 2011 to 79.8 percent of GDP this year.


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