Spain sells bonds at higher rates after Moody's warning

16th December 2010, Comments 0 comments

Spain raised 2.4 billion euros (3.2 billion dollars) in a bond sale Thursday but it had to pay higher rates on the debt a day after Moody's threatened to downgrade the country's credit rating.

The treasury sold 1.782 billion euros of 10-year bonds at an average yield -- the rate of return paid to the holder -- of 5.446 percent, the economy ministry said.

That was up sharply from the 4.615 percent paid when similar dated securities were last sold on November 18.

It also sold 619 million euros of 15-year bonds at 5.953 percent, compared with 4.541 percent in October when similar dated bonds were last issued.

The government had expected to raise between 2.0 and 3.0 billion euros with the auction, its last bond issue of the year.

Moody's, which trimmed Spain's sovereign debt rating from top-notch Aaa to Aa1 in September, said Wednesday it had now put it on review for a further cut, sparking an immediate rise in the rates on its bonds.

At the same time, it said Spain's solvency was not under threat and that it did not expect the country would need support from a European rescue fund.

A rescue for Spain would be far bigger than anything seen to date in Europe -- its economy is twice the size of Greece, Ireland and Portugal combined.

Moody's blamed three factors for the credit warning -- Spain's vulnerability because of high funding needs next year; the risk that its banks may need more money than expected to recapitalise and concerns over Madrid's ability to control spending by semi-autonomous regions.

These were enough to justify considering a downgrade of Spain's creditworthiness, it said.

Moody's estimated Spain may have to raise 170 billion euros from the markets next year, despite government hopes to raise up to 15 billion euros by partly privatising the national lottery and airport operator.

In addition, Spanish regions needed another 30 billion euros in refinancing in 2011 while the banks accounted for another 90 billion euros.

The Spanish government aims to rein in its public deficit from 11.1 percent of annual economic output last year, the third highest in the eurozone after Greece and Ireland, to 3.0 percent -- the EU limit -- by 2013.

© 2010 AFP

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