Madrid was forced to pay an average yield of 1.9 per cent on its three-month and 2.5 per cent on its six-month bills, versus an average rate of 1.6 per cent and 1.8 per cent respectively at the last equivalent auction just a month ago.
The sale saw demand almost halve, and the spread between the yields on Spanish bonds and German bunds rose by 13 basis points to 329 after its conclusion.
Yesterday’s auction is the second time in a week that Madrid has had to pay through the nose to finance its public spending. A sale of longer-term bonds on the morning of the Eurozone’s crisis last Thursday saw yields reach euro-era record highs.
“The most important point again is the fact that relative to the last auction yields are much, much higher ... It’s not a good situation to be in,” said Marc Ostwald, Monument Securities strategist. “We may have had some relief last week but that relief has proven to be rather short-lived.”
Spain has made progress on cutting its budget, but could still miss its deficit target of six per cent of GDP this year. Madrid faces a show-down with regional governments at a budget meeting today. The centre-right opposition recently won control of most regions, which are responsible for a large portion of Spain’s overspend.