Spain pays higher rates over 5.0% in bond issue

Spain paid sharply higher borrowing rates of more than five percent in a 3.158-billion-euro bond issue Tuesday, its central bank said, amid fears it will succumb to eurozone financial instability.

Investors bought up the 12-month bonds at a 5.022 percent rate of return and the 18-month ones at 5.159 percent, compared with rates of less than four percent in a similar sale on October 18, the Bank of Spain said in a statement.

The bond repayment rates are a key measure of market confidence in a country’s ability to pay its debts. A higher rate indicates weakening confidence that makes it harder for a country to borrow money.

Emergency finance measures and the resignation of prime ministers in Greece and Italy appeared to have failed to calm markets Tuesday and the jitters spread to Spain, just five days before its general election.

Spain’s debt risk premium broke euro-era records on fears that the government will miss targets to slash the bloated public deficit.

The central bank has warned that growth was anaemic in the third quarter of 2011 and economists have warned Spain risks falling back into recession next year.

A key measure of a country’s financial stability, the gap between the rate of return on Spain’s 10-year bonds and that of Germany, widened to a record 452.2 basis points, indicating increasing tension.

The Madrid stock market’s IBEX 35 index was down 1.33 percent in morning trading on Tuesday.