Spain’s borrowing costs climb after disappointing bond sale

City A.M. Reporter
TEN-YEAR Spanish bond yields rose above the psychologically worrying seven per cent line yesterday, after the country paid euro-era record yields for five-year funding as investors remain concerned about its finances and growth prospects.

Spain sold at the top of its €2bn to €3bn target range, but borrowing costs for two-, five- and seven- year bonds rose across the board.

The difference between the lowest and the average bid, or the tail, was also seen as relatively wide, reflecting badly on the quality of the bidding.

Meanwhile French 10-year government bond yields fell to a new euro-era low after it sold €8.96bn of bonds maturing in 2015, 2016 and 2017, including €4.5bn of five-year debt at a yield of 0.86 per cent.

The figures show that investors are increasingly marginalising southern economies from what they see as the Eurozone’s safer core economies.

Spain has continued to access markets without many hiccups but only thanks to domestic investors and partly because it has steered issuance towards the short end of the curve.

After needing a bailout for its banks, the concern is its yields could soon become prohibitive and force it to seek a full-blown rescue. “The risk is that yields could start rising also in shorter maturities where Spain is doing most of the funding, and that will basically be game over for Spain,” said Gianluca Ziglio, a strategist at UBS.