Costs spike at Spanish debt sale

City A.M. Reporter
SPAIN’S short-term borrowing costs rose to their highest level since 1997 in a debt sale yesterday as investors worried the country will soon be forced to ask for international aid.

The country sold €2.4bn (£1.9bn) of the 12-month T-bill at an average yield of 5.074 per cent yesterday, compared with 2.985 per cent at the last auction in May.

It sold €639m of 18-month paper at an average yield of 5.107 per cent after a cost of just 3.302 per cent last month.

The Eurozone’s fourth-largest economy has become the focus of the regional debt crisis, with the country struggling to overcome recession and a costly banking sector restructure.

Yields on Spanish 10-year bonds have been trading above seven per cent, a level that is seen as unsustainable for Spain's shaky public finances.

The rise in Spain’s longer-term interest rates put the sale of €3bn of bills in the spotlight ahead of a bond auction tomorrow.

The government met its target amount but the yield on the 18-month paper was the highest since November while the 12-month bill sold with the highest rate since before the birth of the euro.