Spain yields rise, urges quick Irish debt decision

 

Spain's short-term debt financing costs jumped on Tuesday, tarnished by fallout from the fiscal crisis in Ireland, which should decide quickly whether to seek a bailout, a Spanish official said.

Yields rose sharply at auctions of 12-month and 18-month treasury bills compared with a month ago, though demand was decent at close to 5 billion euros in what analysts said were difficult circumstances.

Investor concerns over Ireland's debt mountain and the viability of its banks have caused a selloff of its sovereign bonds that has pushed up borrowing costs for Spain and other countries on the euro zone periphery.

Treasury Secretary Carlos Ocana said Spanish yields would ease as soon as Ireland reached a decision on whether to seek outside help.

"The important thing is that Ireland makes a decision as soon as possible" he said, speaking on the sidelines of a conference in Madrid.

Economy Minister Elena Salgado, who will attend a meeting of European Union finance and economy ministers in Brussels on Wednesday, said it was by no means inevitable that Ireland would seek a rescue package.

She said the Irish situation would be discussed first at a meeting of euro zone finance ministers later on Tuesday, which Economy Secretary Jose Manuel Campa will attend in her place.

Last week the risk premium measured by the spread between yields on 10-year German bunds and Spanish 10-year bonos rose to a record high of 232 basis points. On Tuesday it stood at around 198 bps.

Ocana said Spain had financing to cope reasonably well with the type of turbulence seen in markets over past weeks, and that the spread between Spain and Germany would narrow further when the financing problems dogging both Ireland and Portugal were addressed.

Spanish central bank governor Miguel Angel Fernandez Ordonez had on Monday nudged Ireland to make a decision to stop debt problems spreading further across the euro zone periphery.

YIELDS RISE

At Tuesday's auction, the yield on Spain's 12-month paper rose to 2.363 percent from 1.842 percent last month and the 18-month yield to 2.664 percent from 2.009 percent.

Bids totalled more than 11.5 billion euros and bid-to-cover ratios of 1.9 times for the 12-month and 3.7 for the 18-month. compared with 2.1 and 2.0 respectively at the October auctions.

"Spain has paid a high price to issue these bills. But in an environment of uncertainty for the periphery, with markets fearful that problems could spread to Spain, it has been a decent auction" said Chiara Cremonesi, analyst at UniCredit. Cremonesi said Spanish debt would remain under pressure for the rest of the year given the Treasury still had a lot to issue.

Spain has been under pressure to make sweeping reforms to change its economic model. Reports suggested on Tuesday the government would be able to present a draft document of a pension reform by year-end as planned, and have a draft law prepared by April.