Demand strong, yields fall at Spain debt sale

Tue Jan 24, 2012 9:16am EST
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By John Stonestreet

MADRID (Reuters) - Investors buoyed by a European Central Bank backstop flocked to a sale of Spanish short-term debt on Tuesday, buying three- and six-month paper at sharply lower yields to give a shot in the arm to the country's ambitious deficit-reduction program.

Madrid sold 2.51 billion euros ($3.27 billion) of debt, right in line with expectations, on demand that soared to more than 13.5 billion euros.

"It was a good auction ...and yields fell sharply," Estefania Ponte, an economist de Cortal Consors, said.

"But the market is starting to get used to good (Spanish) auction results and it didn't react."

Borrowing costs fell sharply from the last time the same maturities were sold in mid-December - a day before the European Central Bank's pushed almost half a trillion euros in three-year loans into the bloc's banks.

At just 1.285 percent and 1.847 percent, respectively, the yields on the three-month paper was the lowest since last February and on the 6-month yield the lowest since June.

Spain has moved away from the sharp end of the euro zone crisis in recent weeks, its debt-servicing program supported by the flood of cheap ECB money along with the bank's regular purchases of Spanish bonds on the market.

Markets have also responded to efforts by the government of Mariano Rajoy, which took office last month, to get to grips with an ailing economy and push ahead with a tough deficit-reduction program.   Continued...

<p>The Spanish flag flutters over the Colon square in central Madrid January 23, 2012. REUTERS/Juan Medina</p>