Spain enjoys lower yields on long-term bonds

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Spain enjoyed lower interest rates in an auction of long-term bonds on Thursday, in a sign of renewed investor confidence in the country's battered economy.

The Treasury raised 4.13 billion euros ($5.8 billion) from the sale, well within its target range of 3.5 to 4.5 billion euros. Demand was strong at 7.7 billion euros.

The average yield, or rate of return earned by investors, on 10-year bonds was 5.162 percent, down from 5.20 percent at the last such auction on February 17 and from 5.174 percent at Wednesday's close.

For the 30-year bills, the rate was 5.875 percent, down from 5.957 percent on February 17 and from Wednesday's close of 5.883 percent.

The Madrid stock market hailed the auction, gaining 0.61 percent immediately after the announcement, after several days of declines.

The sale comes one week after Moody's downgraded Spain's credit rating to "Aa2" and warned it may do so again, on fears the government will be unable to meet its targets of slashing the public deficit and on concerns over the cost of restructuring in the banking sector.

The Bank of Spain hours later announced that the banks will need just 15 billion euros to clean up their balance sheets, less than the government's ceiling 20 billion euros and well below the predictions of experts.

Interest rates were also lower on Tuesday in the first Spanish bond sale since Moody's downgrade.

Spain's finances and economy, with a jobless rate of just over 20 percent the highest in the industrialised world, have prompted fears it may need a costly EU bailout like Greece and Ireland.

The government has strengthened bank balance sheets, cut spending and pursued economic reforms to allay market jitters over the outlook for Spain's finances.

© 2011 AFP

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