Tags: EU | Spain | Financial | Crisis

Investors Flock to Spanish Debt Sale But Cost Rises

Thursday, 17 Jun 2010 07:16 AM

Spain — fighting speculation it is headed for a bailout — raised nearly 3.5 billion euros ($4.3 billion) Thursday as investors snapped up an offering of treasury bonds, although at sharply higher interest rates that indicate they still view government finances with skepticism.

Markets welcomed the result, with the euro and stock markets rising.

Spain is adamantly denying persistent speculation that its troubled public finances and credit problems with its banks are pushing it toward some sort of rescue similar to the one given to Greece by the European Union and the International Monetary fund.

Unicredit analyst Chiara Cremonesi said Thursday's auction went well, noting Spain had issued close to the maximum of the range announced and that demand was solid.

"Overall, all the elements point at a good result, although a note of caution comes from the fact that the amount sold was rather subdued if one considers that Spain sold two bonds," Cremonesi wrote. "That said, even taking into consideration this, we would judge the result as reassuring, especially given that Spain has been under the spotlight over the last few days due to reported strains in its banking system and its bleak fiscal outlook."

Spain's Treasury auctioned off 3 billion euros in 10-year bonds at an average interest rate 4.86 percent, up from 4.045 in the last auction in May. It sold 479 million euros in 30-year bonds at an average interest rate of 5.9 percent, up from 4.8 percent in March.

The Treasury had hoped to issue between 2.5 billion euros and 3.5 billion euros in long-term debt.

The auctions were oversubscribed 1.89 and 2.45 times, respectively, suggesting investors retain an appetite for Spanish debt but demand a higher yield.

The Madrid stock market welcomed the results of the auction. The Ibex 35 index was up 1.2 percent shortly after the figures came out.

Also, the interest rate gap, or spread, between 10-year Spanish bonds compared to their benchmark German equivalent fell. The smaller the gap, the more positive investors think Spain's debt is risky. Early in the day the gap had set yet another record at 2.33 percentage points, but after the auction the difference was down to 2.14 points.

Seeking to refute speculation concerning the health of Spanish banks, the Bank of Spain said Wednesday it has carried out stress tests on them and would publish the results. It gave no timeframe but suggested this would happen soon.

"The Bank of Spain has conducted stress tests to verify that all banks, savings banks and credit co-operatives will have sufficient capital available to get through the most reasonable scenarios, but also for complex growth scenarios in the near future," Governor Miguel Angel Fernandez Ordonez said in a speech.

"The Bank intends to publish the results of these stress tests, to reveal the deterioration estimated, the consequent capital requirements and the capital funding committed, to provide the markets with a perfectly clear idea of the situation of the Spanish banking system," he said.

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Spain fighting speculation it is headed for a bailout raised nearly 3.5 billion euros ($4.3 billion) Thursday as investors snapped up an offering of treasury bonds, although at sharply higher interest rates that indicate they still view government finances with...
EU,Spain,Financial,Crisis
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2010-16-17
 

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