Spanish borrowing costs declined on Tuesday in its first debt auction since the government announced the latest round of austerity measures last week in a bid to attain deficit targets amid a severe recession.
The Spanish Treasury sold a total EUR 3.56 billion of 12- and 18-month bills, slightly exceeding the target of EUR 2.5 billion - EUR 3.5 billion set for the sale.
The country placed EUR 2.6 billion worth of 12-month T-bills to yield 3.918 percent, which was much less than the 5.074 percent paid at the previous auction on June 19. The bid-to-cover ratio that reflects demand fell to 2.23 from 2.16.
The agency also sold EUR 962 million worth of 18-month paper. The yield on the security dropped to 4.242 percent from 5.107 percent at the previous sale on June 19. Demand was 3.66 times the offer compared to 4.42 times last month.
Prime Minister Mariano Rajoy unveiled a EUR 65 billion austerity package on July 11 days after EU postponed Spain's deadline to meet the target by an year.
The Eurogroup extended the deadline for bringing Spain's deficit to 3 percent of GDP by one year to 2014 and also relaxed the target for this year to 6.3 percent of GDP. Leaders have recommended the headline targets of 4.5 percent of GDP for 2013 and 2.8 percent for 2014.
Eurozone finance ministers are likely to meet on July 20 to finalize the EUR 100 billion Spanish bank bailout deal struck last month. On July 9, the ministers agreed to make available up to EUR 30 billion by the end of this month.
Spain is set to face a tougher challenge on Thursday when it auctions its medium-to-longer term bonds. The country plans to raise between EUR 2 billion and EUR 3 billion.
The country's efforts to achieve budget targets are weighed down by the deepening recession. The new austerity measures pose the risk of further worsening the economic situation.
The Bank of Spain has said that the recession may have worsened in the second quarter. Gross domestic product shrunk 0.3 percent in the first three months of the year.
The International Monetary Fund slashed Spain's economic outlook for next year in its world economic outlook released yesterday. The Washington-based lender now sees a 0.6 percent contraction versus the 0.1 percent growth expected in April. But the 2012 projection was upwardly revised to show a 1.5 percent contraction this year compared to the 1.9 percent contraction expected earlier.
by RTT Staff Writer
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