The amount of interest that Spain had to pay to borrow fell at an auction of short-term government bonds on Tuesday.
That implies investors believe the European Central Bank will intervene on bond markets to help Madrid borrow at more affordable rates.
But a lack of detail over when and how the Bank will act meant the interest rates – or yields – remained punishingly high at just over three percent on one year treasury bills.
The Spanish Treasury sold 4.5 billion euros of 12- and 18-month T-bills, at the top of its target of between 3.5 billion and 4.5 billion euros, though demand was mixed. The yield on the shorter paper fell to 3.070 percent from 3.918 percent in July.
“The focus is very much on the ECB’s pledge of intervention, in combination with (euro zone rescue fund) the EFSF. Markets appear to be giving the benefit of the doubt to that money hitting the markets but there’s a lot left to be revealed,” Deutsche Bank economist Mark Wall said.
The Treasury will not sell longer-dated debt until September 6, the same day the ECB is expected to detail its plans for addressing the eurozone’s debt crisis, and German Chancellor Angela Merkel pays an official visit to Spanish Prime Minister Mariano Rajoy in Madrid.
Spain’s debt servicing costs remain uncomfortably high because investors are unnerved by uncertainties over whether Madrid will need to apply for a full sovereign bailout. That would stretch existing European Union funds and likely transfer much of the market pressure to the larger Italian economy.