Spain Presses ECB to Quantify Bond Purchases as Bill Yields Rise

Spain said it needs to know how much the European Central Bank intends to spend buying its debt to decide if it should seek outside help as its borrowing costs rose at a bill auction in Madrid.

The auction was held amid mounting tension in Madrid where police have locked down the area around the parliament before protests scheduled for today and as Catalans agitate for independence. Prime Minister Mariano Rajoy has held off seeking aid since ECB President Mario Draghi last month said he’ll buy Spanish debt if Rajoy accepts conditions.

“There are many fronts we have to tackle,” Deputy Prime Minister Soraya Saenz de Santamaria told radio station Cadena Ser today. “We need to know to what extent the ECB will intervene in the secondary market. To take decisions you need to have all the elements on the table.”

The yield on three-month notes rose to 1.203 percent compared with 0.946 percent the last time the paper was auction on Aug. 28. Six-month yields climbed to 2.213 percent from 2.026 percent. Demand fell with the bid-to-cover ratio for three-month paper dropping to 1.83 from 2.17.

In Barcelona, the regional assembly of Catalonia today started a three-day debate on a proposal to break away from Spain as its President Artur Mas weighs calling for early local elections. Their demands are adding a new dimension to Spain’s financial crisis, Saenz said.

“An institutional crisis damages Spain in the eyes of outsiders,” she said.

Regions’ Fund

An 18 billion-euro ($23 billion) fund to bail out regions will be operational this week. Mas has told Rajoy he will accept the conditions set for financial support, Saenz said.

Saenz last week signaled the central government may also be edging closer to requesting aid as she set out arguments in favor of a rescue for the first time. Rajoy is preparing to announce more measures to overhaul the fourth-largest economy in the euro area on Sept. 27 when he will unveil a 2013 budget that will inflict more austerity on Spaniards, Saenz said.

Police barricaded the streets around the national legislature today to defend lawmakers from demonstrators, chanting, “Take the Parliament.” Officers demanded identification and proof of address from local residents before they were granted access to their homes.

“There is total confusion,” said Alfredo Arahuetes Garcia, head of the economy department at Pontificia Comillas University in Madrid. “Politicians have no idea what to do and citizens are feeling abandoned because no one is explaining what is being done about the crisis.”

Franco’s Echo

The deputy leader of Rajoy’s People’s Party, Dolores de Cospedal, yesterday compared the demonstration to the 1981 attempted coup when army officers tried to derail Spain’s return to democracy after the dictatorship of General Francisco Franco.

Spain’s 10-year bond yields 423 basis points more than similar-maturity German bunds, more than five times its average since the single currency began in 1999. Italy’s 10-year bond currently yields 359 basis points more than German debt.

Italian yields fell at an auction today with its treasury paying 2.532 percent on zero-coupon 2014 bonds compared with 3.064 percent on Aug. 28.

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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