Spain’s latest attempt to sell government bonds met a lukewarm reception from investors.
As a result, at its first bond auction in a month, Madrid had to pay a higher rate of interest to find buyers for three and a half billion euros worth of bonds due to be paid back in five years.
That is despite European Central Bank buying Spain’s bonds on secondary markets to stop the euro zone debt crisis spreading.
The ECB has bought around 43 billion euros worth of debt since it reactivated its bond-buying programme, helping to lower financing costs of struggling euro zone states.
However, market volatility and a lack of final agreement over Greece’s second bailout package and an extension of the European Financial Stability Facility (EFSF) will keep markets nervous for some time.
Analysts believe Spain could not afford borrowing costs of more than seven percent over a long period without eventually being forced to take a bailout like Greece or Portugal.
Spain has scrambled to pass new austerity measures in the last two weeks to help meet its tough public deficit cutting target this year, while it also plans to include a deficit capping measure in its constitution.