Spain's borrowing costs creep higher

MADRID: Borrowing costs for Spain crept higher Thursday as the recession-hit country made big inroads into financing state spending for 2013.

The Spanish treasury raised 4.076 billion euros in a sale of bonds expiring in three, five and 13 years.

But demand for the bonds eased off and the Treasury had to offer a slightly higher return to lure buyers when compared to the last similar auction on May 9.

Spain, with the eurozone's fourth-largest economy, was forced to pay crippling rates of more than seven percent in mid-2012 as it struggled to curb soaring public debt, raising fears of a financial collapse.

But Spain and other eurozone states have enjoyed a substantial drop in borrowing costs since the European Central Bank vowed last September to help debt-struck members if necessary by buying an unlimited sum of their bonds albeit under strict conditions.

Spain's government said it had now raised 57 percent of the money it planned to raise through bond sales in 2013.

"The slight rise in yields today's auction suggests some foreign investors are beginning to refocus on the still potentially damaging steady stream of poor Spanish economic and fiscal data," said Raj Badiani, analyst at research group IHS Insight.

"Although the bond markets are comfortable with the conditional ECB backstop for Spanish paper, some investors remain concerned that the Spanish economy shows no sign of casting off its recessionary shackles, while the government is no position to claim it has regained control of its public finances."

In the latest bond auction, Spain had to pay investors an average yield of 2.442 percent for the three-year bonds, up from 2.247 percent at the last comparable sale on May 9; 3.001 percent on five-year bonds, up from 2.789 percent; and 4.540 percent on the 13-year bonds, up from 4.336 percent.

Demand by investors outstripped supply by almost two-to-one, down from nearly three-to-one at a sale of short-term debt securities on Tuesday.

But risks hovered over the Spanish economy, Badiani said, citing debt strains in the country's regions, likely turbulence in housing and balance sheet weaknesses at the banks.

"Given this backdrop, the recent fall in Spanish sovereign borrowing costs across the maturity range in 2013 looks vulnerable, and we expect yields to begin to edge up in the second half of 2013 as the markets become increasingly frustrated by the lack of growth in Spain."