Treasury gets through bill tenders but at higher rates

The Treasury reached its sales target at Tuesday's auction of T-bills but was forced to offer much higher rates in the wake of the latest bout of turbulence in the euro sovereign-debt markets.

The government's debt-management agency sold a total of 4.45 billion euros in 12- and 18-month bills. That included 3.787 billion euros in 12-month paper at a cut-off rate of 3.760 percent, over a percentage point more than in the previous auction a month ago. Demand fell but at 8.237 billion euros still doubled the amount on offer.

In the 18-month tender, the Treasury sold 660 million euros, with the marginal yield rising from 3.299 percent in June to 3.980 percent, the highest level since 2002. The bid-to-cover ratio improved to 5.5 times from 3.9 times last month.

The rates paid Tuesday were almost four times those at the start of 2010 prior to the emergence of the Greek debt crisis.

"What is important is that there is ongoing demand on the part of the market," Reuters quoted Nicolás López, director of analysis at M&G Valores, as saying. "The Treasury has had to pay more, but we hope this is temporary."

The tenders were the first held after the release last Friday of the results of the stress tests carried out on European banks. The spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent hit a euro-era high last week of 376 basis points and closed just shy of that level on Monday.

However, there was some relief for the storm-lashed markets on Tuesday. After opening at 366 basis points, Spain's risk premium moved below 350 basis points after the tenders, before closing at 341 basis points. The stock market also recovered, with the blue-chip Ibex 35 ending the day up 1.03 percent at 9,443.80 points.

The next big day for the Spanish Treasury is Thursday, when it will be looking to issue 10- and 15-year bonds. The tenders coincide with a meeting of European Union leaders in Brussels in which they are due to continue talks on a second rescue package for Greece, the main source of the latest turmoil in the euro zone.

The outcome of that meeting is seen as key to restoring some calm to the financial markets and reviving faith in the future of the single-currency project.