Concerns over a deepening recession and weakness in the banking sector coupled with fears about Greece exiting the euro area triggered a sharp increase in Spain's borrowing costs at a short-term debt auction held on Thursday, which also saw improved demand for the nation's debt.
Nonetheless, the Spanish Treasury said it successfully met the maximum target and the demand for bonds marked a notable improvement. The country sold EUR 2.5 billion, near the top end of the target range of EUR 1.5 billion to EUR 2.5 billion.
The agency raised EUR 1.02 billion from the sale of bonds maturing on July 2015. Demand exceeded the offer by 3.01 times, up from 2.88 times in the previous auction conducted on May 3. However, the yield increased to 4.876 percent from 4.037 percent.
From the auction of securities maturing on January 2015, the treasury received EUR 372 million. The bid-to-cover ratio improved to 4.47 from 2.41. Meanwhile, the yield doubled to 4.375 percent from 2.89 percent.
The treasury raised EUR 1.1 billion from the sale of April 2016 bonds. While the bid-to-cover ratio rose sharply to 2.38 from 4.13 times, average yield climbed to 5.106 percent from 3.374 percent.
Spain is struggling to fix a crisis in its banking sector, which is now undermining hopes of a recovery in the recession-hit nation. The country has the highest unemployment rate in the 17-nation bloc.
The Spanish economy shrank 0.3 percent in the first quarter of 2012 as well as the final three months of last year, implying a technical recession. The European Commission has forecast Spain to contract 1.8 percent this year and 0.3 percent in 2013.
Political instability in Greece has raised doubts about the nation continuing in the bloc. The country will again go to polls on June 17 as no party gained majority and negotiations to form a coalition government failed.
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