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Spain's borrowing costs surge at healthy bond auction

Spain’s borrowing costs have surged at its first bond auction since Standard & Poor’s slashed the country’s credit rating last week, though strong demand at the sale indicates that investor appetite for Spanish debt remains healthy.

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A woman cries behind the smashed window of her shop during heavy clashes with riot police during a 24-hour strike on March 29, 2012 in Barcelona, Spain. (David Ramos/Getty Images)

LONDON, UK – Spain’s borrowing costs surged on Thursday at its first bond auction since Standard & Poor’s slashed the country’s credit rating last week, though strong demand at the sale indicates that investor appetite for Spanish debt remains healthy.

The Bank of Spain sold three-year bonds at average yields of 4.04 percent, a jump up from 2.6 percent at its last sale on March 1, and also shifted two categories of five-year bonds with yields of 4.75 percent and 4.96 percent, up from 4.3 percent on April 4, the BBC reports.

Spain’s central bank beat its targets for how much debt to sell, with demand outstripping supply by more than three-to-one, RTE News reports.

However, interest rates on the country’s 10-year bonds – the benchmark for borrowing costs – are moving closer to 6 percent, making it very expensive for the euro zone nation to borrow compared to its neighbors.

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Spain is now at the forefront of the euro zone debt crisis due to concerns over its public deficit and contracting economy, and pressure is mounting for a plan to recapitalize its banks, which are saddled with bad debts from a property market crash, Reuters reports.

Thursday’s sale comes a week after ratings agency Standard & Poor’s cut Spain’s long-term sovereign credit rating for the second time this year, citing mounting debt and weak banks.

Official figures released last week revealed that unemployment in the country has hit a record high of 24.4 percent, the highest in the EU, while data published on Monday showed that Spain’s economy has entered a second recession.

Investors fear the country is on the verge of requesting assistance or even an emergency bailout. 

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