Borrowing costs drop in Spanish bond bonanza

Spain's long-term borrowing costs eased on Thursday in a bond sale, authorities said, a further sign of strengthening confidence in the country as it hopes to crawl out of recession.

Borrowing costs drop in Spanish bond bonanza
The Madrid stock exchange building. Photo: Tomás Fano

The rate of return demanded by investors for the benchmark 10-year bond — a key measure of confidence in the eurozone's fourth-biggest economy — edged close to the record low level reached in 2010, the Bank of Spain said in a statement.

Investors snapped up more than €4 billion ($5.29 billion) in total, overshooting the Treasury's target of three or four billion euros, with demand for the bonds more than double the amount on offer.

The Treasury sold €2.41 billion of 10-year bonds, with the rate of return falling to 4.50 percent from 4.72 percent in the last comparable auction on July 18.

That brought the key rate closer to the record low of 4.14 percent reached in September 2010.

It also sold just under €1.6 billion worth of five-year bonds, with the rate falling to 3.48 percent from 3.56 percent in the last comparable sale on August 1.

Spain's soaring borrowing costs last year raised fears for the overall stability of the eurozone but the conservative government resisted speculation that it would seek a full euro zone bailout and financial tensions have since eased.

The pace of economic contraction eased in the second quarter of this year and the government and central bank now expect the country to return to economic growth in the current quarter.

The Madrid stock exchange rose slightly after Thursday's sale, with the IBEX-35 leading share index 0.39 percent higher in early afternoon trading.

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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.