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Spain Bond Yields Fall On Rescue, ECB Hopes


Spain conducted a successful bond auction on Thursday, with borrowing costs falling amid hopes the country will request aid paving the way for the European Central Bank to purchase sovereign debt.

In the first bond auction held by Spain after the European Central Bank announced its new bond purchase plan earlier this month, the treasury raised EUR 4.8 billion from the sale of its benchmark 10-year bond and a new 3-year bond. The target set for the sale was between EUR 3.5 billion and EUR 4.5 billion.

The yield on the January 2022 bond dropped to 5.666 percent from 6.647 percent paid in the previous sale on August 2. The bid-to-cover ratio, which mirrors investor demand, rose to 2.85 from 2.4.

The new three-year bond fetched a yield of 3.845 percent. Demand for the October 2015 debt was 1.6 times the offer.

There is lingering uncertainty over Spain's bailout request. The government led by Prime Minister Mariano Rajoy is hesitating to place a bailout request to the EU, apparently worried over the tough austerity conditions such a rescue would entail.

On Tuesday, Deputy Prime Minister Soraya Saenz de Santamaria said the government is still studying the conditions of a possible EU bailout. The government is trying to minimize the impact of austerity measures on the population, she noted.

Pressure is building on the embattled euro area member to seek a bailout. ECB Governing Council Member Luc Coene warned on Monday that rising bond yields may force Spain to place a bailout request.

"If the markets see that Spain is not going to" ask for financial assistance, "it will not be long before spreads will rise again and Spain will be forced to come back" on its decision to request bailout and submit to ECB conditions, the policymaker said.

Trouble is rising on the political front for Rajoy with calls for secession increasingly spreading in Catalonia, which contributes a fifth of the country's economic output. Many of Spain's 17 autonomous regions are struggling to handle their public finances and have sought help from the government.

by RTTNews Staff Writer

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