Spain borrowing costs up as Irish return to market

Thu Jul 5, 2012 12:04pm EDT
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By Paul Day and Padraic Halpin

MADRID/DUBLIN (Reuters) - Ireland returned to short-term debt markets on Thursday for the first time since before its EU/IMF bailout in November 2010, paying less for three-month paper than Spain which has avoided going to international lenders for a full sovereign rescue.

International appetite for debt auctions held by the two countries - both victims of banking crises caused by a property market crash - varied widely, although Dublin's first commercial borrowing in almost two years was much more modest in size than Madrid's.

Whereas Ireland trumpeted international demand at its sale of three-month treasury bills, most foreign investors are shunning Spain's debt auctions, even though Madrid has avoided going to international lenders for a full sovereign bailout.

The Spanish Treasury paid the highest rate in over seven months to borrow 10-year funds, suggesting the positive effect of last weekend's agreement by euro zone leaders is wearing off.

Altogether, Madrid auctioned 3 billion euros ($3.75 billion) in three maturities of bonds. It sold 747 million euros in the benchmark 10-year bonds at an average yield of 6.43 percent, up from 6.044 percent at the last such auction on June 7.

Peter Chatwell, a rate strategist at Credit Agricole, said that at least Spain was still able to raise funds in the market - despite the problems of its banks, many of which have been brought to their knees by heavy lending to failed property projects and a second recession since 2009.

"The market continues to function, but on this evidence there is still no significant change in sentiment or investor demand towards Spanish debt," said Chatwell.

Altogether three euro zone governments auctioned debt on Thursday morning, shortly before the European Central Bank cut interest rates.   Continued...