Spain goes in for bond sale as credit risk downgrade looms

Spain will be going in for a final bond sale for the year as threat of credit rating downgrade looms large undermining the efforts of the government to convince investors the nation and its lenders can meet their refinancing needs in 2011.

The auction today of 10-year and 15-year bonds is aimed at raising around €3 billion after rising borrowing costs led the Treasury to cut the habitual goal of as much as €4 billion, according to finance minister Elena Salgado. Meanwhile, the 10-year bonds yields was up at a decade-high yesterday, rising to 5.56 per cent, before closing at 5.50 per cent.

According to Moody's Investors Service it may reduce the country's Aa1 rating less than three months following the previous cut. It added, Spain's central government, regional administrations and banks collectively need €290 billion financing next year, which would leave the country ''susceptible to further episodes of funding stress.''

According to analysts, Moody's announcement would put some pressure on the auction. They add that the current uncertain environment may make investors skeptical about buying Spanish debt.

Meanwhile, European leaders have gathered in Brussels to discuss the creation of a permanent mechanism to support countries experiencing financing difficulties, beginning in 2013.

Even as concerns mount over existing €750-billion fund falling short if more countries seek help, Germany has hardened its opposition to expanding the facility, shifting more pressure onto the European Central Bank (ECB) and its bond-buying program.