Spain successfully auctions short-term bonds

THE Spanish government held a successful, although expensive, short-dated bond auction yesterday, managing to shift €3.26bn’s worth of debt – at the lower end of its €3bn-€4bn target range.

But the government had to pay a premium for the money compared to its last auction in October, reflecting fears of a contagion effect from the Irish crisis.

It was forced to pay a rate of 1.7 per cent on three-month notes and 2.1 per cent on six-month bonds, significantly up from rates even a month ago, which were 0.95 per cent and 1.28 per cent respectively.

The high yields prompted fears that although the Spanish government successfully reached its sale target amount, the punitive yields are unsustainable in the long-term.

Arbuthnot Banking Group economist Ruth Lea said that the bailout was aimed to “control contagion” in the sovereign bond markets from Ireland to Portugal and, crucially, to Spain. “But bailouts for these countries cannot be ruled out,” she warned.