Spain’s Borrowing Costs Rise at EU2.5 Billion Bond Sale

Spain sold the maximum target of 2.5 billion euros ($3.2 billion) of bonds at an auction even as the Treasury paid the most this year to sell three-year debt amid growing concern that contagion from a Greek exit from the euro area may engulf Spain.

Spain sold bonds due in January 2015 at an average yield of 4.375 percent, compared with 2.89 percent when they were sold in April. It sold bonds due in July 2015 at 4.876 percent, compared with 4.037 percent on May 3 and bonds due in April 2016 at 5.106 percent.

Demand was 4.47 times the amount sold for the January 2015 debt, compared with 2.41 at the last auction, and the bid-to- cover for the July 2015 securities was 3.01, compared with 2.88.

The Treasury aimed to sell 1.5 billion euros to 2.5 billion euros of bonds, about half the level at similar auctions a year ago. Prime Minister Mariano Rajoy said yesterday the country faces the “serious risk” of losing access to debt markets. Spanish 10-year bond yields rose as high as 6.5 percent yesterday, approaching the 7 percent mark that pushed Greece, Ireland and Portugal toward European rescue packages.

The yield fell to 6.31 percent after the auction from as high as 6.36 percent before the sale, narrowing the spread over German bunds to 484 basis points.

The Treasury is trying to lure investors back into Spanish debt. Foreign investors cut their holdings to 219.6 billion euros as of the end of March, or 37.5 percent of the total, compared with 281.4 billion euros, or 50 percent, at the end of last year, data from the Treasury show. Spanish banks increased their holdings to 170.6 billion euros from 94.4 billion euros after the ECB offered banks unlimited funds for three years.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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