Spain borrows 3 bln euros in short-term sale, yields up

 

Spain paid a slightly higher premium to borrow 2.99 billion euros over 3 and 6 months at a debt sale on Tuesday as investors awaited clarity over a second Greek bailout.

The amount of treasury bills sold was at the higher end of the Spanish government's target range of 2.25 billion to 3.25 billion euros and attracted solid volumes of bids from investors.

Yields on the 3-month paper jumped 18 basis points compared to the last tender in May and on 6-month paper they inched up a point.

The risk premium on Spanish 10-year bonds compared with benchmark German Bunds narrowed 9 basis points on Tuesday compared with Monday's settlement to just under 256 basis points.

"This was encouraging, but reflective of how the markets are positioned given the indirect effect of Greece," Jo Tomkins, economist at 4cast, said.

"The market's waiting for the vote of confidence in Greece, with the lion's share expecting it to pass."

The Spanish auction was being closely watched for signs of contagion from Greek uncertainty after last week's lacklustre bond tender triggered a sell-off of Spanish paper.

In Greece on Tuesday, Prime Minister George Papandreou faces a confidence vote against a backdrop of deep public anger over the pain of austerity measures that Parliament has yet to approve.

Markets have long been jittery over whether Spain could follow Greece, Portugal and Ireland into the euro zone debt crisis.

The Spanish Treasury sold 630 million euros of 3-month bills at an average yield of 1.568 percent on Tuesday, compared with 1.380 percent at the previous auction in May. The bid-to-cover ratio rose to 9.49 compared with 6.59. It placed 2.36 billion euros of 6-month bills at an average yield of 1.776%, up from 1.766%. The bill was 3.84 times subscribed compared with 5.46 times in May