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Home News Spain pays higher yields in 3.372 bln euro bond issue

Spain pays higher yields in 3.372 bln euro bond issue

Published on 20/04/2011

Spain paid out higher yields to raise 3.372 billion euros ($4.9 billion) in a government bond auction on Wednesday in a climate of heightened concern over euro-zone debts.

Spain has been caught up in renewed fears over sovereign debt levels, propelled by Portugal requesting a bailout April 6 and then by Standard & Poor’s warning on Monday it may downgrade US debt.

Higher yields are costly to Spain, whose central and regional governments and banks need to raise about 290 billion euros in gross debt including rollovers in 2011, according to Moody’s.

In the latest issue, the treasury raised 2.487 billion euros in 10-year bonds at an average yield of 5.472 percent, up from the last similar auction March 17 when the yield was 5.162 percent.

It also raised 885 million euros in 13-year bonds at an average 5.667 percent, sharply up from the previous similar auction on November 19, 2009 which paid a yield of 4.248 percent.

Spain faces signficant refinancing hurdles in April, July and October. It has to roll over 21.79 billion euros of sovereign bonds and bills in April, 20.2 billion euros in July and 23.40 billion euros in October.

On Monday, the treasury was forced to pay sharply higher rates than a month earlier when it raised 4.66 billion euros ($6.6 billion) in auctions of 12 and 18-month bills.

But in the context of Spain’s overall debt issuance, “a peak of several extra points at the time of an issue is not too important,” Finance Minister Elena Salgado said Tuesday.

Spain, whose economy is the size of Greece, Ireland and Portugal’s combined, has been battling to convince markets that it should not be lumped together with its less fortunate partners.

The Spanish authorities have enacted reforms to strengthen bank balance sheets, cut state spending, make it easier to hire and fire workers, lower the retirement age and sell off assets.

Prime Minister Jose Luis Rodriguez Zapatero has vowed to bring the country’s annual public deficit below an EU ceiling of 3.0 percent of gross domestic product in 2013.

The public deficit hit 11.1 percent of GDP in 2009, the third-highest in the eurozone after Greece and Ireland, before falling to 9.24 percent last year.

The economy is struggling with an unemployment rate that hit 20.33 percent at the end of 2010, the highest in the industrialized world.

Salgado said the yield on Spanish public debt began to rise on Thursday on concerns about the possibility of a restructuring of Greek debt. Strong gains in Finland’s weekend elections by the right-wing True Finns who oppose EU bailouts added to the doubts, she added.