Spain forced to offer higher yields at bond auction

2nd December 2010, Comments 0 comments

Spain was forced to offer sharply higher yields on three-year bonds in an auction on Thursday in a sign that market fears persist over its economy despite new government measures.

The Spanish Treasury raised 2.468 billion euros (3.256 billion dollars) for the bonds that mature on October 31, 2013, within its target range.

But the average yield offered was sharply higher than at the last similar auction on October 7, at 3.717 percent, up from 2.527 percent previously.

The bonds attracted strong demand with offers of 5.599 billion euros, a government spokesman told AFP.

And despite the higher interest rates, the Madrid stock market was up more than 3.0 percent following the announcement.

UniCredit Bank strategist Chiara Cremonesi said the auction was reasonably well received, taking into consideration the current environment.

The sale "sends a reassuring message to investors, after the recent speculation on contagion of the sovereign debt crisis to Spain," she said, according to Dow Jones Newswires.

On November 23, Spain was forced to almost double the interest paid on short-term bonds in an auction, its first following the Irish bailout.

The main stock market index had closed up 4.44 percent on Wednesday, its second highest one-day rise this year, after the government announced new measures aimed at reviving the troubled economy and dousing market fears of an Irish-style bailout.

Prime Minister Jose Luis Rodriguez Zapatero announced the partial privatisation of the state lottery company and the sale of a bigger stake in its airport operator.

He also said the government would scrap a monthly subsidy to unemployed workers and cut taxes for 40,000 small and medium sized firms to help spur growth.

Finance Minister Elena Salgado said in an interview published on Thursday in the Financial Times that the measures will allow the government to cut its debt issue by a third next year.

The Spanish government has slashed spending to bring a public deficit that hit 11.1 percent of GDP last year, the third highest in the eurozone after Greece and Ireland, down to an EU limit of 3.0 percent in 2013.

The Spanish economy emerged from the recession it entered during the second-half of 2008 due to the collapse of a property bubble with tepid growth of just 0.1 percent in the first quarter and 0.2 percent in the second and zero percent in the third.

© 2010 AFP

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