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Spain's borrowing costs hit new highs

Spain's borrowing costs hit new highs
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It is getting more difficult for Spain’s government to borrow money.

The Spanish Treasury did manage to sell just under three billion euros worth of government bonds in its latest auction on Thursday but had to offer higher rates of interest to entice investors. Demand was also down.

That is because the financial markets remain unconvinced Spain’s problems can be solved by the austerity measures being brought in as part of a bailout deal for the country’s banks.

Bond buyer Javier Ferrer, head of the debt desk at Ahorro Y Corporacion, explained the scepticism: “On longer term bonds the interest the treasury has had to pay is frankly high and that’s where the auction suffered most. There are still many doubts about Spain, there are still doubts about what the conditions of the bailout are going to be. What happens in terms of the signing and agreement of the ‘Memorandum of Understanding’ for the bailout is very important.”

The final terms for the 100 billion euro bailout for Spanish banks will be discussed by EU finance ministers on Friday.

EU says no to bond buying

The European Commission has just said that that money can only be used for recapitalising the banks -not for buying government bonds – removing another potential lifeline for Madrid.

“The up to 100 billion euros, which the euro zone has undertaken to provide to Spanish banks is to do just that, it is only for that purpose and not for any other,” Commission spokesman Simon O’Connor told a regular briefing.

“There is no link between assistance for bank recapitalisation in Spain and any other type of financial assistance, which might be requested at some further juncture by Spain or anybody else,” he added.

Spanish daily El Pais wrote on Thursday that any amount not used for bank recapitalisation out of the up to 100 billion euros could be used to buy public debt.

“The press reports have been based on a misinterpretation of the legal document,” O’Connor said.

What Spain sold

The Treasury sold 1.4 billion euros worth of bonds maturing October 31, 2014 with a 3.3 percent coupon, at an average yield of 5.204 percent compared to 4.335 percent last month, at a bid-to-cover ratio of 1.9 after 4.3 previously.

It also sold 1.1 billion euros worth of bonds maturing in July 30, 2017, with a 5.5 percent coupon at a yield of 6.459 percent, above June’s yield of 6.072 percent and 2.1 times subscribed compared to 3.4 times in June.

The bond maturing October 31, 2019 with a 4.3 percent coupon, sold for a yield of 6.701 percent after 4.832 percent in February. The Treasury placed 548 million euros worth of the bond at a bid-to-cover ratio of 2.9 after 3.3 previously.