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Spain’s borrowing cost tumbles in 10-yr bond issue

Spain’s borrowing costs tumbled Thursday in an issue of benchmark 10-year bonds, a key test for the country after it suffered a rating downgrade.

Investors ploughed money into the market, flush with cash since the European Central Bank last month extended nearly half a trillion euros in three-year loans to eurozone banks at rock-bottom rates.

Madrid issued bonds with terms of four, seven, and 10 years, with the market focused on the 10-year bonds because of doubts about whether investors would use the ECB money for longer-term investments.

In the end, the availability of ECB cash apparently overrode concerns about Standard & Poor’s downgrade of nine eurozone nations’ credit ratings Friday, when it slashed Spain’s by two notches to A from AA minus.

Investors clamoured to buy the paper, with bids for all three bond issues combined exceeding 15.3 billion euros ($20 billion), Bank of Spain figures showed.

Spain took advantage of the competitive rates and sold a total 6.609 billion euros in the auction of four-, seven- and 10-year bonds — well above the target of 3.5-4.5 billion euros.

The average 10-year bond’s rate plunged to 5.403 percent from 6.975 percent at a comparable auction last November 17 and the seven-year bond yield fell to 4.541 percent from 5.110 percent last October 20.

The four-year bond yield edged up, however, to 4.021 percent compared to 3.912 percent it had paid January 12, which was a day before the rating downgrade.

It was the sixth consecutive successful bond auction for Spain, giving the new right-leaning government of Prime Minister Mariano Rajoy some breathing room as it seeks to finance its operations.