Spain drew strong demand for its bonds on Thursday, matching Italian debt auctions from the previous day as investors flush with ECB cash brushed aside market concerns over Madrid's ability to hit deficit targets in a recession-hit economy.
The Treasury sold 3 billion euros of medium-term debt split between three maturities, in the middle of a lower than normal target range and eagerly swallowed up by investors with borrowing costs on the three-year paper hitting their lowest since mid-2010.
The sale was the second in two days reflecting improved sentiment towards peripheral euro zone debt, driven by a second wave of ultra-cheap European Central Bank loans, domestic structural reforms and a slightly brighter outlook for the global economy. On Wednesday, Italy raised the top planned amount of 6 billion euros across three maturities, paying the lowest three-year yield since October 2010.
Core euro zone state France also returned to markets on Thursday, comfortably selling 8.5 billion euros of bonds as investors took advantage of slightly higher yields offered than on German Bunds. Spain and Italy have been a focus of concerns about spreading debt turmoil in the euro zone, with debt markets viewing the latter as nearer the sharp end of the crisis in recent months. But a tussle with its European peers this week to gain more time to slash its public deficit together with a less favourable economic outlook has now left Spain more exposed.