MADRID — Spain was forced to pay sharply higher interest rates in a pair of bond auctions, reflecting raised investor fears over the country’s ability to handle its debts and avoid a bailout.
The Spanish Treasury says it sold €2.2 billion ($3.2 billion) in three-year notes carrying interest rates of 4.81 percent, and €1.1 billion of three-and-a-half year notes with a rate of 4.98 percent.
t the last comparable bond auction on July 7, three-year bonds had an interest rate of 4.3 percent.
Demand for Thursday’s sale was more than twice supply.
Spanish 10-year yields have jumped about 70 basis points to a high of 6.46 per cent since a euro region leaders’ summit on July 21st failed to convince investors the spread of the debt crisis can be halted by a so-called selective default for Greece.
Spanish 10-year bonds yielded 6.07 per cent after the auction as the spread, or difference, between Spanish and German bonds of that tenor narrowed to 362.6 basis points. However, yields rose again in the afternoon, rising to 6.284 per cent at the close, with the spread rising to 399 basis points.
Demand for the three-year bonds yesterday was 2.14 times the amount sold, compared with 2.29 times in July.
The sale will likely be Spain’s only bond auction this month.
“The Spanish treasury has decided to follow the precedent of the previous two years and not summon a long-term auction on August,” it said in a statement.
Elena Salgado, Spanish finance minister, on Wednesday night insisted that the auction would go ahead in spite of nervousness in the bond markets, in order to show that Spain was capable of raising the money it needed to repay maturing debt and finance its budget deficit. Spain had never cancelled an auction even in turbulent times, she said.
Speaking after an emergency meeting with prime minister José Luis Rodríguez Zapatero to discuss the crisis and jump in debt yields, she acknowledged the volatility was worrying but attributed turmoil this month to thin volume because of the holiday season.
“I don’t think this is a response to the market turbulence, I think this is a summer thing. During the crisis it has been usual for a number of countries to cancel their auctions. But considering the crisis, it’s possible to interpret anything however you like,” interest rate strategist at RBS Harvinder Sian said.
Spain still needs to sell about €38 billion in debt by the end of the year and has completed 60 per cent of its 2011 financing, less than the euro-area average of 67 per cent, according to a report by UniCredit.
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