Spain pays lower rates in 4.56 bn euro bond issue

Spain’s borrowing rates tumbled Thursday in a sale of its medium-term bonds, the central bank said, a fresh sign of easing market confidence as the country fights to stabilise its finances.

The Spanish treasury borrowed 4.56 billion euros ($5.99 billion) by selling the three- and five-month bonds, slightly exceeding its target of 3.5-4.5 billion euros as it took advantage of the lower rates.

Demand from investors was more than double the amount on offer, at 10.5 billion euros.

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

The country, which has the eurozone’s fourth-biggest economy, has now completed almost a quarter of the 86 billion euros’ worth of medium- and long-term bond sales scheduled for 2012.

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 and could get a further boost with another, possibly much bigger three-year operation at the end of February.

Spain’s 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 meanwhile.

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.

In Thursday’s sale, the rate of return on Spain’s three-year bond tumbled to 2.86 percent from 3.38 percent at the last comparable auction last month, the Bank of Spain said.

It fell to 3.46 percent from 4.02 on the four-year bond and from 5.54 to 3.57 percent on the five-year bond.