Borrowing Costs Rise for Spain and Italy
MADRID — Spain’s short-term borrowing costs nearly doubled from a month ago at auctions Tuesday, with the government selling relatively small amounts of debt given investor doubts about its shrinking economy and a new flare-up in the euro zone crisis.
The Netherlands, which has a much higher credit rating, also held a debt auction, selling €2 billion, or $2.6 billion, of bonds and attracting solid demand even after its government resigned over its failure to approve its budget. And Italy paid at least a full percentage point more than a month ago to sell €3.44 billion of debt.
The Spanish Treasury sold €725 million of three-month bills and €1.2 billion of six-month bills. Yields spiked from the last time the bills were sold, in March. The average yield on the three-month bill was 0.634 percent, up from 0.381 percent, while it was 1.580 percent on the six-month bill compared with 0.836 percent a month ago.
“The pick-up in yields is a clear negative headline for Spain,” said Jo Tomkins, an analyst at 4Cast, a consulting firm. “The country is facing a double-whammy of low growth and tough austerity, and doubts that it will be able to hit already optimistic deficit targets.”
Spain is in the favorable position of having already sold half of its planned medium- and long-term debt issuance for 2012.
Steady demand allowed Italy to sell €3.5 billion of two-year bonds and inflation-linked paper. The Italian Treasury paid 3.36 percent on its two-year, zero-coupon bond, up from 2.35 percent a month ago, reflecting growing nervousness about Italy and Spain’s finances and the commitment of the euro zone’s core economies to budget austerity.
These levels compare with a euro era high of 7.8 percent for the zero-coupon paper at the height of the crisis in November, when Italy’s debt pile was threatening to spiral out of control.
“Demand is holding up but at an increasingly hefty price for the Treasury,” said Nicholas Spiro of Spiro Sovereign Strategy.
Italy will offer up to €6.25 billion of bonds on Friday, including 5- and 10-year debt, after a sale of €8.5 billion in six-month Treasury bills on Thursday.
Italy has virtually no medium- and long-term maturities in May and June, giving it some latitude at a time of rising market tension.