Spain pays more than Greece on short-term paper

The Spanish Treasury was forced to pay higher rates on short-term paper than bailout recipients Greece and Portugal on Tuesday, as the country's sovereign debt remained under heavy pressure.

The Economy Ministry's debt-management agency paid rates of over 5 percent for the three- and six-month bills at Tuesday's tenders, figures not seen since 1993 for the shorter-dated paper and 1997 for the six-month issue. At a 10-year auction held last week, the Treasury had to offer a cut-off yield of over 7 percent for the first time since 1997.

Tuesday's tender was the first since the opposition Popular Party's landslide victory in Sunday's general elections, which afforded it a comfortable absolute majority of 11 seats in the lower house.

The Treasury issued a total of 2.98 billion euros in three- and six-month bills, just 20 million short of its maximum target. Demand for the two issues fell from the levels seen at the previous tender.

The cut-off yield for the six-month issue was 5.328 percent, more than double the rate offered at the previous auction, held on October 25, of 2.350 percent. The rate for the three-month bills also more than doubled to 5.220 percent from 2.350 percent. Greece and Portugal have been paying rates of under 5 percent on three-month bills in recent tenders.

These are "eye-popping" rates, Reuters quoted Jo Tomkins, a strategist at consultancy 4Cast, as saying.

The Popular Party's deputy leader, María Dolores de Cospedal, said late Monday that Spain cannot afford to continue to pay rates of 7 percent on its debt. Cospedal said that during a telephone conversation on Monday, PP leader and prime minister-elect Mariano Rajoy asked German Chancellor Angela Merkel for help from European institutions to overcome the crisis.

Spain's risk premium remained at dangerously high levels on Tuesday after touching a new euro-era record level last week of just shy of 500 basis points. The spread between the yield on the 10-year government bond and the benchmark German equivalent closed Tuesday up about 5 basis points, at 468.

The European Central Bank has been buying Spanish and Italian government bonds in the secondary market since the start of August in an effort to ease some of the pressure.