Spain raised €4.5 billion in short-term debt auctions that saw it paying sharply lower interest rates amid speculation that it will eventually seek aid to manage its finances.
The Treasury said it sold €3.5 billion in 12-month bills at an average interest rate of 2.84%, down from 3.07% in the last such auction on August 21.
It sold €1.01m in 18-month bills at a yield of 3.07%, down from 3.35%.
Demand was more than double the amount offered in the 12-month bills and more than three times for the 18-month bills.
Spain's borrowing costs have fallen from unsustainable highs in recent months after it said it may apply for international aid - if the conditions are reasonable - and after the European Central Bank said it would buy unlimited amounts of government bonds to help countries like Spain.
The rate for Spain's benchmark 10-year bonds on the secondary market dropped from over 7.5% in July to 5.5% last week, signaling a big increase in investor confidence.
But the 10-year rate edged back up toward 6% this week as some investors worried about Prime Minister Mariano Rajoy's perceived procrastination in demanding a bailout. Spain's Treasury will test investor confidence again on Thursday when it plans to sell up to €4.5 billion in three and 10-year bonds.
Four countries using the euro have already sought bailouts since the international financial crisis began - Greece, Ireland, Portugal and Cyprus. But the economy of Spain - the euro zone's fourth largest - is bigger than those of the four bailed-out countries put together. Bailing it out would seriously test the European Union's finances.
Meanwhile, the testing economy continues to hurt businesses and banks. The central bank reported that Spanish banks now have a whopping €170 billion in loans that are at risk of not being paid, a record figure that represents 9.86% of their total loans.
The bank said that the proportion of non-performing loans in July was up from 9.42% in June. Many of Spain's banks are loaded with soured property investments after the collapse of the country's property market in 2008.
The 16 other countries that use the euro last month agreed to provide Spain with up to €100 billion to help support these banks. Results of a complete stress test of the sector are due to be made known September 28.
Greece raises €1.3 billion in T-Bill auction
Greece has raised €1.3 billion in a treasury bill auction, with rate for the 13-week loans easing slightly to 4.31%.
The government's Public Debt Management Agency said the sale of €1 billion in debt was oversubscribed 1.98 times, and the additional €300mon was raised in non-competitive bids. The interest rate eased from 4.43% set at a T-Bill auction last month.
Debt-strapped Greece is negotiating a major new austerity package worth more than €11.5 billion with its rescue lenders. The measures are a requirement for continued emergency loan payments.
