Spain paid high borrowing rates to raise €3.9 billion in a bond auction today, its first since Moody's slashed the country's sovereign debt rating.
The Treasury sold a mix of five, eight and 10-year bonds to raise a combined €3.9 billion, comfortably meeting its target for the auction, the Bank of Spain said. But rates were generally higher.
Moody's earlier this week cut Spain's rating by two notches to A1 from Aa2, with a negative outlook, "to reflect the downside risks from a potential further escalation of the euro area crisis".
Spain's Treasury sold five-year bonds for €1.082 billion at an annual rate of 4.782%, up from 4.489% at the last comparable sale on September 1.
It also sold eight-year bonds for €1.036 billion at a rate of 5.11%, up from 4.969% at the previous comparable auction on September 15. It sold 10-year bonds for €1.788 billion at a rate of 5.4335, down from 5.8965 at the previous comparable auction in July, which was before the European Central Bank began buying Spanish and Italian bonds to support the market.
Spain has promised to reduce its annual public deficit from the equivalent of 9.3% of gross domestic product last year to 6% of GDP this year, 4.4% in 2012 and 3% in 2013.
But Moody's, like other rating agencies, cast doubt on those targets because of slower than expected economic growth as it downgraded the Spanish sovereign debt this week.
"Moody's expects the budget deficits for the general government sector to be above target both this year and next," it warned.
Spain is scrambling to raise extra money in 2011 to meet the targets - telling firms to pay tax installments early, lowering state spending on medicines and stimulating new home purchases with a tax cut. Each year of deficit pushes up overall debt, which grew to 65.2% of GDP as of June 30 from 57.2% a year earlier.
