Help the refugees

If you move around the world by choice, consider helping those forced from their homes by conflict. Donate to the UN Refugee Agency today.

Home News Spain’s borrowing costs fall in Treasury bill auction

Spain’s borrowing costs fall in Treasury bill auction

Published on 27/11/2012

Borrowing costs for Spain fell Tuesday when it sold Treasury bills on a market that breathed easier after international lenders reached a deal averting a Greek bankruptcy.

Spain’s Treasury took advantage of the relaxed market to raise 4.09 billion euros ($5.3 billion) in an auction of three- and six-month bills, surpassing its own declared target of 3.0-4.0 billion euros.

Compared to the last similar sale on October 23, the rate of return for three-month bills fell to 1.254 percent from 1.415 percent and for six-month bills to 1.669 percent from 2.023 percent.

International financial markets strengthened after the eurozone and IMF reached a deal in the early hours of Tuesday, throwing a new lifeline to Greece.

Eurozone finance ministers agreed in principle to transfer, in December, 43.7 billion euros ($57 billion) so that the country does not default at around the end of the year.

They also adopted a new arrangement with the International Monetary Fund, a party to eurozone bailout packages, to slice more than 40 billion euros by 2020 from the debt owed by Greece.

Prime Minister Mariano Rajoy’s right-leaning government is meanwhile fending off market pressure for Spain to apply for a sovereign bailout from the region’s European Stability Mechanism.

If Spain applied for such a bailout and submitted to strict conditions, it could unlock unlimited bond-buying support from the European Central Bank to lower its borrowing costs.

But Spain has already met its 2012 target for sales of medium- and long-term bonds to finance government debt and expenditures, meaning it can almost certainly put off a rescue request until 2013.

In fact, Spain has embarked early on next year’s medium and long-term financing programme.

Spain’s borrowing costs have plunged since mid-summer when the government’s 10-year bond yield surpassed seven percent.

Interest rates remain high, however.

Spanish 10-year bonds offered an extra return over safe-haven 10-year German bonds — a difference popularly known as a risk premium — of 417 basis in morning trade.