Spain paid out higher yields to raise €3.372 billion in a government bond auction yesterday in a climate of heightened concern over euro-zone debts.
Spain has been caught up in renewed fears over sovereign debt levels, propelled by Portugal’s bailout request on April 6 and then by Standard & Poor’s warning on Monday it may downgrade US debt.
Higher yields are costly to Spain, whose central and regional governments and banks need to raise about €290 billion in gross debt including rollovers in 2011, according to Moody’s.
In the latest issue, the treasury raised €2.487 billion in 10-year bonds at an average yield of 5.472 per cent, up from the last similar auction March 17 when the yield was 5.162 per cent.
It also raised €885 million in 13-year bonds at an average 5.667 per cent, sharply up from the previous similar auction on November 19, 2009 which paid a yield of 4.248 per cent.
Spain faces significant refinancing hurdles in April, July and October. It has to roll over €21.79 billion of sovereign bonds and bills in April, €20.2 billion in July and €23.40 billion in October.
On Monday, the treasury was forced to pay sharply higher rates than a month earlier when it raised €4.66 billion in auctions of 12 and 18-month bills.
But in the context of Spain’s overall debt issuance, “a peak of several extra points at the time of an issue is not too important,” Finance Minister Elena Salgado said Tuesday.
Spain, whose economy is the size of Greece, Ireland and Portugal’s combined, has been battling to convince markets that it should not be lumped together with its less fortunate partners.
The Spanish authorities have enacted reforms to strengthen bank balance sheets, cut state spending, make it easier to hire and fire workers, lower the retirement age and sell off assets.
Prime Minister Jose Luis Rodriguez Zapatero has vowed to bring the country’s annual public deficit below an EU ceiling of three per cent of gross domestic product in 2013.The public deficit hit 11.1 per cent of GDP in 2009, the third-highest in the eurozone after Greece and Ireland, before falling to 9.24 per cent last year.
The economy is struggling with an unemployment rate that hit 20.33 per cent at the end of 2010, the highest in the industrialised world.
Ms Salgado said the yield on Spanish public debt began to rise on Thursday on concerns about the possibility of a restructuring of Greek debt. Strong gains in Finland’s weekend elections by the right-wing True Finns who oppose EU bailouts added to the doubts, she added.