MADRID: Prime Minister-elect Mariano Rajoy faces the first test on Tuesday of whether markets have been reassured by his conservative party's sweeping election victory when Spain tries to sell up to 3 billion euros ($4 billion) of short-term government debt.
Investors had hoped for a clear victory for Rajoy's People's Party, which has promised tough measures to tackle the worst economic crisis in decades, but there has been little relief on the markets since his landslide victory.
Spain's borrowing costs are still close to levels that forced Greece and Portugal into an international bailout and Madrid remains at the centre of the euro zone debt maelstrom.
Investors are frustrated by a lack of detail on Rajoy's plans and he showed no sign of hurrying after his victory on Sunday, saying he will keep impatient markets and edgy Spaniards guessing until he is sworn in just before Christmas.
Signs before the auction around 0940 GMT were not encouraging with yields on the 3-month bill on the secondary market more than double those recorded at the previous primary auction last month, making short-term financing costs the highest in 14-years.
The People's Party (PP), voted in by a sweeping majority on Sunday as angry voters dumped the ruling Socialists, is not expected to take power formally until around Dec. 20, under an angonisingly long transition required by Spanish law.
Rajoy says he will hold his first cabinet meeting on Dec. 23, and has resisted pressure to at least give some crumbs to nervous investors on precisely what he intends to do to cut the deficit and restore market confidence.
The PP's manifesto was short on policy detail, as Rajoy sat back and relied on anger over a grinding crisis that has put one in five Spaniards out of work--the highest rate in the European Union -- to rocket him to the biggest election win in 30 years.
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