Spain’s borrowing costs fall in Treasury bill auction

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.