September 27, 2011 10:46 am

Spanish bond yields rise

The Spanish government’s short-term borrowing costs rose in a €3.2bn ($4.3bn) auction that followed comments from the country’s finance minister dismissing the prospect that European leaders were close to bolstering the size of the continents’ sovereign bail-out fund.

Amid market speculation that the size of the European Financial Stability Facility could be ramped up to €2,000bn, Elena Salgado, economy minister, said that this had not been proposed.

“It is not on the table, nor has it been discussed,” Ms Salgado said in an interview with Spanish television on Tuesday.

An auction of short-term Spanish treasury bills that followed the comments saw the country’s borrowing costs rise again even as the European Central Bank continues to dip into the secondary market to support the prices of Spanish and Italian debt.

Madrid sold €3.2bn of three and six month bills, less than the €3.5bn it had been aiming for in auctions that attracted less investor demand than similar sales last month.

The yield Spain was forced to pay for the auction of the three-month bills rose to 1.692 per cent, compared with a level of 1.357 per cent paid when the government last sold similar debt in August.

For the three month debt auction the bid-to-cover ratio, a measure of investor demand weighed against the amount of debt on offer, fell to 2.47 times compared with 7.62 times last month.

For the six-month bills Madrid attracted bids at 2.665 per cent, higher than the 2.187 per cent it paid at an auction last month, with the bid-to-cover ratio rising from 3.6 times in August to 3.9 times.

The yield on Spain’s benchmark ten-year bond, which moves inversely to its price, fell slightly to 5.077 per cent, compared with a level of more than 5.1 per cent on Monday.

In a separate auction Italy was forced to pay the highest amount to borrow for two years since July 2008 in the first state debt auction since Standard & Poor’s downgraded the country’s debt by one notch last week.

Italy was able to sell its targeted amount of €14.5bn, but at a yield of 4.511 per cent, up from 3.408 in August. In mid 2008, the last time Italian 2 year borrowing costs were at the same level, European Central Bank reference interest rates stood at over 3 per cent, compared to a current rate of 1.5 per cent.

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