Irish yields surge on disappointing Spanish debt auction

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Irish bond yields shot up close to 8.0 percent on Tuesday after financially troubled fellow eurozone member Spain had to offer sharply increased rates to raise funds.

With Ireland seen as increasingly likely to ask for financial aid from the European Union, the yield -- or interest rate -- on the 10-year Irish sovereign jumped to 7.959 percent in late morning trade from 7.768 percent on Monday.

"We are in a very fragile context and the slightest news judged to be disappointing drives up the Irish rates," said Natixis bond strategist Cyril Regnat.

Irish yields had earlier been easing. But the trend was sharply reversed on news that Spain had to offer increased rates to raise 4.975 billion euros (6.7567 billion dollars) at an auction of 12-month and 18-month bonds.

The Spanish treasury said it sold 3.7 billion euros in 12-month bonds at an average yield of 2.363 percent, compared with 1.842 percent when the securities were last sold on October 19.

It raised 1.2 billion euros in 18-month bonds at an average yield of 2.664 percent, up from 2.009 percent at the last auction also on October 19.

The treasury had hoped to raise between 4.5 and 5.5 billion euros with the bond issues.

"The market is waiting for Irish government reaction and that does not work in favor of Irish rates," Regnat said.

Portugal too has been under heavy pressure on the markets of late, with its finance minister warning that the country risked having to call for a bailout in the face of possible contagion from debt problems elsewhere in the eurozone.

Portuguese 10-year paper was carrying a yield of 6.612 percent on Tuesday after 6.531 percent on Monday, indicating the rate it would have to pay in future debt auctions.

On Tuesday, Greece managed to raise 390 million euros (532 million dollars) in a sale of three-month treasury bills but like Spain had to offer a higher yield to draw investors.

The yield offered was 4.10 percent, up from 3.75 percent for an equivalent treasury bill issue worth 900 million euros a month earlier.

The latest sale on Tuesday was originally intended to raise 300 million euros, and received offers worth 1.49 billion euros, the agency said.

Greece hopes to return to financial markets in 2011 with long-term debt sales, having issued only three-month and six-month bills since a 110-billion-euro rescue package from the European Union and the International Monetary Fund in May.

Athens is struggling under a debt mountain of 300 billion euros and its economy is caught in a deepening recession.

© 2010 AFP

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