Spanish borrowing costs jump

City A.M. Reporter
Spain's short-term borrowing costs jumped at a sale of more than €3bn of short-term government debt on Tuesday, reflecting fears about the country's finances and boding ill for a key long-term debt auction later in the week.

The Spanish Treasury sold €3.2bn of 12 and 18-month bills, just above its target range of 2-3 billion in sales - solid demand from investors a day after the country's key 10-year bond yield hit a five-month high above 6 percent.

But it was forced to pay a stiff premium compared with a month ago. The yield on the 12-month bill was 2.623 per cent compared with 1.418 percent at the last sale on March 20, and 3.110 per cent on the 18-month bill, up from 1.711 last month.

The sales were in sharp contrast to the country's debt auctions in the first quarter of the year as banks, backed by a wall of cheap European Central Bank cash, put some of it to work in debt of countries at the fringes of the euro zone.

The next big test is the auction of longer-term paper on Thursday.

"The key was again domestic bank bidding ... But it doesn't change the bigger picture too much. The key will be the bond auction on Thursday," said Michael Leister, rate strategist at DZ Bank.