Spain’s €2.4-bn bond sale drives up borrowing costs

The Spanish treasury yesterday sold government bonds worth €2.4 billion in its final auction of the year, sharply pushing up the borrowing costs amid weaker investor sentiment over a looming sovereign debt crisis and a possible bailout.

Just a day before, rating agency Moody's Investors Service had placed Spain's credit rating on watch for a possible downgrade, based on its negative outlook on the country's financial environment and the banking system.

The debt sold yesterday is €1.78 billion of 10-year bonds and €619 million of 15-year bonds.

The average yield for the 10-year bonds shot up to 5.45 per cent from 4.62 per cent in November, registering a rise of 0.83 per cent. For the 15-year bonds, the yield rose much higher at 1.41 percentage points to 5.95 from 4.54 in October.

The amount raised fell €600 million short of the maximum target of €3 billion aimed by the treasury. (See: Spain goes in for bond sale as credit risk downgrade looms)

Investor appetite for the government paper was strong with bid-to-cover ratios of 1.7 and 2.5 for the 10-year and 15-year bonds respectively.