Spain short-term borrowing costs fall to new three-year lows

By Manuel MarĂ­a Ruiz

MADRID (Reuters) - Spain's short-term borrowing costs fell to their lowest levels since the 2010 Greek financial rescue triggered a sell-off in Spanish debt, at an auction of 6-month and 12-month Treasury bills on Tuesday.

The government sold 5.1 billion euros (4.4 billion pounds) of short-term debt, beating a target of between 4 billion and 5 billion euros.

Spain sold 1.2 billion euros of 6-month bills at an average yield of 0.530 percent, down from a yield of 0.794 percent at the last auction, which was on March 12. The last time yields on this maturity were so low was in March 2010.

The Treasury sold 3.9 billion euros of the 12-month debt. Its average yield also dropped, to 1.235 percent from 1.363 percent previously, hitting its lowest level since April 2010.

The promise of increased liquidity flowing into global markets from the Bank of Japan's new monetary expansion, which benefited to euro zone companies' bonds, was one factor that boosted interest in the Spanish auction, an analyst said.

"The Japan effect is part of it... European investors stepped up buying of debt (from the euro zone periphery) when they heard about the Bank of Japan's expansive monetary policy," said Estefania Ponte, strategy director at Cortal Consors, a Madrid-based brokerage.


Spain, the euro-zone's fourth largest economy, is deep in recession but investor confidence in the sovereign has largely returned after the European Central Bank pledged last year to buy debt of troubled euro zone members.

A number of other factors are also supporting prices for Spanish debt, despite plummeting consumer spending, unemployment of 26 percent and restrained bank lending to businesses.

Low interest rates - ECB rates are at a record low 0.75 percent - have pushed international investors into lower-rated euro zone bonds.

Spain's sovereign debt is currently rated just one-notch above speculative - or junk - grade by two of the main rating agencies. Foreign holders increased their holdings of Spanish paper in the last months.

Spain has taken advantage of benign markets to front-load its funding needs for 2013. In the first quarter of the year it raised close to 40 percent of the medium- and long-term funds it plans for this year.

Spain will auction between 3.5 billion and 4.5 billion euros at a triple bond sale on Thursday.

(Additional reporting by Fiona Ortiz; Editing by Julien Toyer)