Spain’s borrowing costs fall on short-term bonds

Borrowing costs for Spain eased as it raised €4.047 billion in short-term debt on Tuesday, a sign of further-strengthening market confidence in the crisis-hit country.

The sale offered further encouragement for the eurozone's fourth-biggest economy, which last year resisted speculation that it would need a sovereign bailout to rescue its public finances.

Overall demand for the 12- and six-month Spanish treasury bills was €10.9 billion , more than double the government's upper target of €four billion ($5.2 billion), the central bank said in a statement.

The rate of return demanded by investors who bought €1.013 billion of six-month bills fell to 0.492 percent from 0.530 percent in the last comparable sale on April 16.

Investors also bought 3.034 billion euros' worth of 12-month bills at a rate of 0.994 percent, down from 1.235 percent on April 16.

The treasury was also in the course of carrying out an auction of benchmark 10-year bonds in a syndicated sale to a group of banks, the economy ministry said.

After a turbulent 2012, indicators of confidence in Spain have strengthened over recent months.

Its borrowing costs have fallen since the European Central Bank (ECB) announced in September its readiness to act to curb borrowing costs for troubled member states that accept strict conditions.

The economic outlook remains dark however. Spain has been in recession since late 2011 and is not expected to emerge from it until next year. The unemployment rate has soared past 27 percent.

Other data on Tuesday showed that the net debt owed by Spanish banks to the ECB fell for the eighth month running in April to reach its lowest level in a year.

It was €257.2 billion in April, down from a peak of 388.7 billion reached in August, the data from the bank of Spain showed.

Higher debt to the ECB indicates greater difficulty for banks to raise financing on the markets — another key indicator of financial confidence in the country.

The figure remains relatively high, having surged over the past two years of financial trouble from €42.2 billion in April 2011.

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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.