Spanish bonds resist Cyprus scare

Spain's borrowing costs dipped in a bond auction on Thursday, easing concerns that a feared banking meltdown in Cyprus could scare investors away from other troubled eurozone states.

Spain's treasury raised €4.513 billion ($5.8 billion) in a sale of two-, five- and 10-year bonds, exceeding its own target range of 3.0–4.0 billion as demand outstripped supply by nearly three to one.

The rate of return demanded by investors eased slightly from similar bond issues in the past month.

Spanish borrowing costs have dropped significantly since the European Central Bank (ECB) last September vowed to intervene on the markets if Spain sought its help.

Ruling Popular Party prime minister Mariano Rajoy, a conservative, resisted pressure last year to seek a sovereign bailout or ask the ECB for help, though he praised the central bank for offering important support.

A key measure of investors' perceptions of the risk of investing in Spain, the extra rate of return demanded on Spanish government 10-year bonds compared with that of benchmark German Bunds, eased to 351 percentage points in morning trade from 359 points at Wednesday's close.

A Bank of Spain report on the latest bond sale showed that Spain sold €2.325 billion in benchmark 10-year bonds, offering a yield of 4.898 percent, down from 4.917 percent in the previous comparable auction March 7th.

Spain also raked in €1.032 billion in the sale of five-year bonds, which offered a yield of 3.557 percent, down from 3.572 percent on March 7th. 

The treasury brought in another €1.156 billion in the sale of two-year bonds, offering a yield of 2.275 percent, down from 2.54 percent on February 21st.

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Spanish bond yields hit record low

The yield on Spanish, Italian and German 10-year government bonds fell to new record lows on Tuesday, the day after the ECB began a massive bond-buying programme to ward off deflation in the eurozone.

Spanish bond yields hit record low
The European Central Bank, in Frankfurt, launced a new quantitative easing programme on Monday. Photo: Daniel Roland/AFP.

The rate of return to investors on 10-year Spanish government bonds fell to 1.231 percent from 1.275 percent on Monday. 

The yield on 10-year Italian government bonds fell to 1.220 percent from 1.280 percent and those of Germany fell to 0.279 percent from 0.312. 

The European Central Bank launched on Monday a so-called quantitative easing (QE) programme that will see it buy €60 billion of eurozone government and corporate bonds through next September.

The ECB hopes that by buying bonds off investors they will invest the money elsewhere, thus boosting growth and preventing a dangerous cycle of falling prices from setting in.

Eurozone bond yields have been falling in recent weeks to record lows as investors anticipated the increased demand from ECB purchases.

The yield on French 10-year bonds was at 0.568 percent in morning trading, above the record low of 0.521 percent set in January.

Greek bonds are not benefitting from the decline in yields due to a new spike in concerns over its finances as well as Greek debt not being included in the QE programme.