Borrowing costs fall at Treasury bond auctions

Borrowing costs at the Spanish Treasury's auction on Thursday of three- and five-bonds fell as doubts about the government's ability to service its debt eased.

The Treasury said it sold 1.893 billion euros in three-year paper at a marginal rate of 3.297 percent, down from 3.797 percent at an auction held at the start of December. It sold a further 1.613 billion euros in five year bonds as the cut-off rate dropped to 4.080 percent from 4.590 percent.

The total amount sold of 3.507 billion euros was below the upper limit of the Treasury's target range of between 3 billion and 4 billion euros. Demand also fell. The bid-to-cover ratio for the three year issue fell to 1.95 times from 2.27 times in December, while bids for the five-year bond exceeded the amount sold by 1.79 times, down from 2.1 times over a month ago.

Spain's risk premium fell below 200 basis points this week for the first time since November before the Irish debt crisis broke.

"We had quite a strong momentum going into the auction and while the result was O.K., a job done, it was not as impressive as people might have expected," Bloomberg quoted Ioannis Sokos, a fixed-income strategist at BNP Paribas in London as saying.

The government, labor unions and employers on Wednesday signed a package of measures aimed at getting the economy moving again and extending the retirement age to 67 from 65.