Spain pays lower rates in 4.9-billion-euro debt sale

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Spain paid sharply lower borrowing rates in a 4.941-billion-euro sale of short-term government debt on Tuesday, a sign of improved confidence in its creditworthiness after months of financial turmoil.

The Treasury paid yields of 4.050 percent for 12-month bills and 4.226 percent for 18-month bills, down from more than five percent in the last comparable auction, it said in a statement.

The amount raised, 4.941 billion euros ($6.5 billion), was higher than the 3.25-4.25 billion euros as the Treasury took advantage of the lower rates to raise extra money.

Demand from investors was very strong, at more than four times the original offer.

Spain's borrowing costs soared last month due to fears over its high public deficit, raising pressure on the conservative leader Mariano Rajoy who will take power next week after winning a November 20 election.

The risk premium -- a key measure of stability reflecting the extra return investors demand to buy Spanish 10-year government bonds over German ones -- broke records in mid-November, surging to around five percentage points.

Rajoy has promised to extend public spending cuts and pass labour reforms to rein in Spain's deficit and reassure markets and tackle Spain's 21.5-percent unemployment rate.

Spain's next bond sale is on December 15, when it aims to raise 2.5 to 3.5 billion euros in bonds of up to 10 years. It has one further sale scheduled this year, an auction of three- and six-month bills on December 20.

The Madrid stock market ticked up by 0.39 percent by midd-day after a sharp fall of more than 3.0 percent on Monday.

© 2011 AFP

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