Spain was forced to offer sharply higher returns today to sell €2.885 billion in short-term bonds as investors worried over sovereign debt burdens in the euro zone.
The Spanish treasury had to offer a rate of 1.899% to borrow money for three months, up from 1.568% at the last such auction on June 21. For six-month bills, the yield soared to 2.519% from 1.776%.
Both rates were well above market levels, with three-month bonds closing yesterday with a yield of 1.625% and six-month bills at 1.825%. Demand was strong, however, at €9.3 billion, which enabled the treasury to achieve its objective of raising €2-3 billion.
Yields on benchmark 10-year Spanish bonds have climbed recently to levels generally considered to be unsustainable in the long-term, a signal that Spain is being sucked into the euro zone debt crisis.
Spain, with an economy the size of the Greek, Irish and Portuguese economies combined, has been battling to convince markets that it should not be lumped together with the three lame ducks now under EU and IMF rescue programmes. But it continues to suffer from the risk of contagion from the crisis.
Italy forced to pay high rates in bond issue
The Italian treasury was also forced to pay increased rates for a €9 billion bond issue today, as Italy's economy continues to feel the pressure on financial markets.
The treasury issued €7.5 billion in six-month bonds at a fixed yield or rate of 2.269% compared to 1.988% for the last similar operation.
It also raised €1.5 billion in two-year bonds at 4.038% compared to 3.219% previously, indicating investor concerns.
