Spain pays lower rates in bond issue

16th August 2011, Comments 0 comments

Spain paid lower rates to raise 5.7 billion euros in government bonds Tuesday, a major test in the midst of a deepening eurozone debt crisis.

The average yield for the 12-month bills was 3.335%, down from 3.702% at a similar auction on July 19, and demand outstripped supply two to one.

Demand for the 18-month bonds was three times the amount sold, and the yield was 3.592%, down from 3.912%.

The sale confirmed an easing of rates, helped by the intervention of the European Central Bank which said Monday it bought a record 22 billion euros ($32 billion) of government bonds last week in a bid to calm a eurozone debt crisis threatening Italy and Spain.

The Spanish Treasury announced early this month it would not hold a bond auction previously scheduled for August 18.

Eurozone woes and weak US data have sparked concern that the world could be heading for another sharp downturn.

On August 5, the debt risk premium for Spain and Italy reached a record gap with the benchmark German bond. But the spread, or difference in the rate of return with German bonds, has since eased.

Eurozone debt fears were heightened after preliminary data Tuesday showed growth in Spain's battered economy slowed in the second quarter of 2011.

France's Nicolas Sarkozy hosts Germany's Angela Merkel in Paris on Tuesday as jittery markets anxiously await any sign that European leaders have a plan to resolve the eurozone's debt problems.

© 2011 AFP

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