Spain's borrowing rates tumbled today in a sale of its medium-term bonds, the central bank said, a fresh sign of easing market confidence as the country fights to stabilise its finances.
The Spanish treasury borrowed €4.56 billionby selling the three- and five-month bonds, slightly exceeding its target of €3.5-4.5 billion as it took advantage of the lower rates.
Demand from investors was more than double the amount on offer, at €10.5 billion. It was the eighth debt auction in a row in which Spain's borrowing costs declined.
The country, which has the euro zone's fourth-biggest economy, has now completed almost a quarter of the €86 billion worth of medium- and long-term bond sales scheduled for 2012.
Buyers have been flush with cash since the European Central Bank last month extended nearly half a trillion euros in three-year loans to euro zone banks at rock-bottom rates. Euro zone governments have benefitted from the liquidity when issuing sovereign debt and could get a further boost with another, possibly much bigger three-year operation at the end of February.
Spain's government, which took power last month after beating the Socialists in November 20 elections, is struggling to meet its promises to cut the public deficit. Rajoy has said Spain's public deficit will amount to the equivalent of about 8% of gross domestic product in 2011, missing the 6% target by a wide margin.
But he has vowed to meet the 2012 goal of reducing the deficit to 4.4% of GDP, even if that means he must find a way to lop an estimated €40 billion off the budget.
In today's sale, the rate of return on Spain's three-year bond tumbled to 2.86% from 3.38% at the last comparable auction last month, the Bank of Spain said. It fell to 3.46% from 4.02% on the four-year bond and from 5.54% to 3.57% on the five-year bond.
France sells €8 billion in bonds
France successfully placed €7.962 billion in medium and long-term bonds today, further evidence that markets have forgiven it the loss of its top AAA credit rating.
The French treasury agency said there was solid demand and that it had paid a favourable rate of 3.13% on its benchmark 10-year bonds, part of an issue that also included six- and eight-year paper.
This was the first issue of bonds maturing in 2022, but in a similar auction of 2021 bonds last month France paid a higher rate of 3.29%.
The 10-year bonds accounted for the bulk of the sale, with €5.698 billion sold, while €1.253 billion in eight-year bonds were sold at a yield of 2.91% and €1.001 billion in six-years at 2.44%.
Last month, the ratings agency Standard and Poor's stripped France of its perfect AAA credit status, triggering fears it might have to pay higher interest on its debts and struggle to hit deficit reduction targets.
In fact, recent bond sales appear to show that the market had already taken on board any doubts it might have about President Nicolas Sarkozy's strategy to insulate France from the euro zone crisis.
But there remains a wide spread between what France and its euro zone partner Germany, which retains its AAA, pays on its bonds.Germany paid 1.82% to issue 10-year bonds yesterday, its second-lowest rate in history.
