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Spain raises €2.5bn as demand high at government bond auction

SPAIN'S government successfully borrowed €2.5bn yesterday, as EU officials and Spanish politicians sought to dispel fears the country would need rescue loans from the eurozone funds.

However, poor economic data later hit Spanish and Italian borrowing rates, with investors again demanding close to 6pc to buy Spanish government bonds in the market.

Madrid raised its funds by selling bonds at auction. There was good demand, with the €2.54bn more than the maximum target set before the auction, but interest rates were higher than in January.

The Spanish treasury sold its 10-year benchmark bond at an average yield of 5.74pc, compared with 5.4pc three months ago, but well below the yields of more than 6pc demanded by some bondholders in the market last week. Purchasers looked for yields of 5.9pc in trading after the auction, which is uncomfortably high for the government. Yesterday's amount was modest in the context of the size of Spain's economy.

Italy's 10-year yields climbed for a second day after a government report showed industrial orders fell more than economists forecast and the Finance Ministry said debt-servicing costs will increase.

"There is a quite significant widening of Italian and Spanish yields relative to German bunds," said Peter Schaffrik, head of European interest-rate strategy at Royal Bank of Canada in London. "Those two economies have low growth and widening budgets. For euro-investors bunds are the natural safe haven."

EU spokesman Olivier Bailly told reporters in Brussels yesterday that there is no plan to activate the eurozone rescue funds to support or recapitalise the Spanish banks.

Mr Bailly said countries cannot request such assistance unless banks are unable to raise capital in financial markets and public funds are unavailable to support the institutions.

"This is not the case for Spain and this is not necessary for Spain, we believe," he said.

There was strong demand for for French government bonds, as the country faces into the first round of the presidential election. The auction raised almost €8bn in loans up to five years, with bids of more than €16bn.

Irish Independent