Borrowing costs sink as investor confidence rises

Spain auctioned bonds at lower costs on Thursday with the country's 10-year borrowing costs falling to the lowest level in three years in a further sign of growing investor confidence in the country.

Borrowing costs sink as investor confidence rises
File photo: Santiago Samaniego

The Spanish Treasury raised €3.51 billion ($4.75 billion) in bonds of five and ten years' maturity, with demand outstripping supply by a ratio of 2.2 to one.

It raised €1.18 billion of 10-year bonds with the rate of return falling to 4.269 percent from 4.503 percent in the last comparable auction on September 5th and its lowest level for this maturity at a debt sale since September 2010.

The Treasury also raised €1.38 billion in five-year bonds at an average yield of 3.128 percent, down from 3.477 percent at the last similar auction of September 5th, and €955 million in a note maturing in January 2018 at a yield of 2.795 percent, down from 3.001 percent.

The Spanish government had expected to raise €2.5-3.0 billion in the bond auction.

With Thursday's auction Spain has now completed 86.2 percent of its insurance target for 2013, the economy ministry said in a statement.

Borrowing costs for Spain and other nations on the eurozone's periphery have eased since the European Central Bank pledged last year to buy debt of troubled eurozone members if needed.

Spain, the eurozone's fourth-largest economy, is still struggling to overcome the aftermath of a decade-long property bubble that imploded in 2008, destroying millions of jobs and sending debt levels soaring.

The government has said it expects the economy to emerge from a two-year recession in the third quarter and will post growth of 0.7 percent next year.

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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.