The sale came a day after Portugal became the third euro zone country to seek international aid as it grapples with a debt crisis.

COMMENTARY:

CHIARA CREMONESI, RATE STRATEGIST, UNICREDIT, LONDON

"The average yield is very good because in the grey market I was seeing 3.6 percent this morning and at these levels it gives only 1-2 bps of premium on the Spanish curve.

They sold more than half the targeted range and it's more than they usually do in a new 3-yr benchmark...This morning we didn't see any sign of contagion."

PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, LONDON

"That should allay any contagion fears they have sold a good amount at 4.1 billion and it's come through secondary market levels with decent coverage. Absorption may cause some volatility clearly the market has a lot of information to deal with right now but should be ok over the course of the day."

MICHAEL LEISTER, RATE STRATEGIST, WESTLB, DUSSELDORF

"The figures look pretty decent, keeping in mind that they issued more than 4 billion euros. It was a decent auction.

"We've seen a spread tightening across the peripherals yesterday and reports that Portugal will ask for aid, which we believe will further stabilise the sentiment for Spain and Italy and the contagion risk will probably be reduced further.

"We are seeing a constructive market environment for the Spanish treasury."

RICHARD MCGUIRE, RATE STRATEGIST, RABOBANK, LONDON:

"Reasonably well Spanish auction. that Spain sold 4.13 billion of its new 3-year (vs. an indicative 3.5-4.5 billionn) with a cover ratio of 1.8 and an average yield of 3.568 percent this compares to 3.04 and 3.592 at the last 3-year sale on March 3. Lower cover ratio perhaps not too surprising given appetite for front end paper will be dampened by the proximity of the ECB rate announcement.

The modestly lower accepted yield is encouraging though and underlines Spain's continuing insulation from the debt crisis across its borders."

MARKET REACTION:

Bund future down 26 ticks at 120.37 vs 120.35 before auction

- Spanish/Bund 10-yr spread 181 bps vs 180 bps before auction

Table: See for full auction details.

BACKGROUND:

Spanish auctions have been well received this year, with an average bid/cover ratio of 2.0, according to Reuters data, rising to 2.3 for shorter-dated sales.