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Spain's Funding Costs Surge
23 November 2010 @ 14:54

Spain's short-term funding costs surged on Tuesday in the wake of Ireland's political and fiscal troubles, with the yield on its latest Treasury-bill auctions sharply higher than a month ago.

The Spanish Treasury offered €3 billion to €4 billion ($4.09 billion to $5.45 billion) in three- and six-month Treasury bills—which represent the shortest end of government debt sales—but sold only €3.256 billion. The amount was closer to the lower end of the range, possibly in an effort to limit the impact of higher yields on funding costs.

The Treasurys paid an average yield of 1.743% on the three-month T-bills, up 83% from 0.951% a month ago, and an average yield of 2.111% on the six-month T-bills, up 64% from 1.285% previously.

The country is still some way from meeting its funding needs for 2010 and has further debt sales scheduled. "Today's auctions are thus the latest reminder that the announcement of the Irish support package was unable to calm the markets, and there is a considerable risk that the general debt worries will mount again, which would mean more pressure also on Spain," said Jan von Gerich, senior analyst at Nordea in Helsinki.

The bid-to-cover ratios of 2.34 and 2.65, respectively, showed healthy demand but the bids are unlikely to have pleased the government. "The bid-to-cover ratios of above two would have enabled bigger sales volumes, but the country is unlikely to have been happy with the levels of the bids," Mr. von Gerich said.

The euro showed little reaction to the Spanish-debt sale, trading at around $1.3586 both before and after the release of the results.

Source: Wall Street Journal

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