Spain sells short-term debt, rates drop

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Spain sold 5.5 billion euros in short-term bonds on Tuesday, with a considerable drop in rates it paid to raise the funds pointing to a relaxing of tensions on the market over Madrid's economic plight.

Demand totalled 14 billion euros for the auction in which Spain targetted selling 5-6 billion euros in 12- and 18-month bonds.

Spain sold 4.5 billion in 12-month bonds at an average yield, or rate of return for investors, of 2.947 percent, down from 3.449 percent it paid in the previous auction of the same instruments on December 12.

It sold slightly over one billion euros in 18-month bonds at an average yield of 3.367 percent, down from 3.721 at the previous auction.

Madrid has faced growing problems in raising fresh funds, with the markets concerned over Spain's high annual deficits and sluggish economy, encumbered by an unemployment rate of nearly 20 percent.

Concerns that regional banks may have been hiding bad property loans and Madrid's ability to control the spending of regional governments have also prompted investors to demand higher rates of return and raised concerns the country could be forced to seek an international bailout.

Spain passed a pivotal test in its first direct bond auction of 2011 on January 13, selling its maximum target of 3.0 billion euros ($3.9 billion) in five-year bonds with demand outstripping supply by two-to-one.

Spain's central and regional governments and its banks combined need to raise about 290 billion euros in gross debt including rollovers in 2011, according to Moody's Investors Service.

© 2011 AFP

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