Spain borrowing rate falls in short-term debt auction

Spain’s borrowing costs tumbled Tuesday as it raised 2.507 billion euros ($3.3 billion) in an auction of three- and six-month bills, luring strong demand from investors.

Investors put in bids for 13.6 billion euros of bills, outstripping supply more than five times and allowing the Treasury easily to meet its goal of raising 1.5-2.5 billion euros, Bank of Spain figures showed.

The rate paid dropped sharply from the previous comparable auction December 20, easing to an average 1.285 percent from 1.735 percent for three-month paper and to 1.847 percent from 2.435 percent for six-month paper.

It was the seventh debt auction in a row in which Spain’s borrowing costs declined.

Buyers have been flush with cash since the European Central Bank last month extended nearly half a trillion euros in three-year loans to eurozone banks at rock-bottom rates.

Eurozone governments have benefitted from the liquidity when issuing sovereign debt, especially short-term debt.

The right-leaning Popular Party government, which took power last month after beating the Socialists in November 20 elections, is struggling to meet its promises to cut the public deficit.

Rajoy has said Spain’s public deficit will amount to the equivalent of about 8.0 percent of gross domestic product in 2011, missing the 6.0-percent target by a wide margin.

But he has vowed to meet the 2012 goal of reducing the deficit to 4.4 percent of GDP, even if that means he must find a way to lop an estimated 40 billion euros off the budget.