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Yields rise less than expected at Spain's 5-year auction

Source: Reuters - Thu 13th Jan 2011

Spain attracted strong demand at an auction of 5-year bonds on Thursday while the yield came in lower than expected, reflecting growing hopes that euro zone governments will take fresh action to ease the region's debt crisis.

The weighted average yield on the 5-year paper jumped by 97 basis points to 4.542 percent from 3.576 percent at the last auction. Expectations were for a jump of 130 basis points.

The sale was Spain's first test this year of investor sentiment after a successful offer by neighbouring Portugal calmed nerves a day earlier.

Portugal and possibly Spain are seen at risk of following their fellow euro zone peripheral countries Greece and Ireland into a financing crisis and bail-out.

The Treasury sold 3 billion euros of the issue, at the upper limit of its target range. The bid-to-cover ratio was 2.1, up on the 1.6 level at the Nov. 4 auction.

Spain, the No. 4 economy in the euro zone, has cut spending and introduced a series of economic reforms to convince investors it can tame its deficit and revive its sluggish economy. But investors remain concerned that bad loans in its savings banks and large deficits in autonomous regions could complicate central government finances.

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