Spain sells bonds at sharply lower yields

Spain's Treasury raised 4.9 billion euros ($6.2 billion) on Tuesday from its auction of 12-month and 18-month bonds, selling the debt at sharply lower yields.

The successful auction was a sign of investor confidence in Spain despite a recent downgrade of the country's long-term sovereign debt by ratings agency Standard & Poor's.

The Treasury raised just over 3 billion euros ($3.8 billion) from the sale of a 12-month bond and 1.87 billion euros ($2.4 billion) from the sale of 18-month paper.

It paid yields of 2.15 per cent and 2.49 per cent, respectively, to sell the debt, compared with borrowing costs of 4.09 per cent and 4.25 per cent on those same bills in December.

The auction far exceeded expectations, with the Treasury receiving orders for 16.7 billion euros ($21.3 billion) worth of bonds.

Spanish bond yields have now fallen in four consecutive auctions and the interest rates on the notes issued Tuesday were the lowest since October 2010.

The country's debt risk premium, the extra return on Spanish 10-year government bonds compared to equivalent safe-haven German debt, had fallen prior to the auction to 329 basis points, down from 338 basis points at the start of the session.

Analysts pointed to the flood of money circulating in sovereign debt markets and improved market expectations about Spain's economy as factors contributing to the lower bond yields.

Another bond auction is scheduled for Thursday, when Spain will look to place between 3.5 billion euros ($4.5 billion) and 4.5 billion euros ($5.7 billion) worth of bonds with maturities ranging from four to 10 years.

Standard & Poor's downgraded Spain's long-term sovereign credit rating Friday by an additional two notches from AA- to A with a negative outlook, citing a deepening of the euro-zone crisis and "external financing risks in the private sector" that could impede growth and hinder the government's ability to reduce a high public-sector deficit.

The move, part of a series of downgrade actions that day also affecting eight other euro-zone countries, "reflects our opinion on the impact of deepening political, financial and monetary problems within the euro zone, with which Spain is closely integrated", S&P said.