Borrowing costs fall sharply at Treasury T-bill auction

The Spanish Treasury sold a hefty 5.64 billion euros in short-date paper at much reduced rates at Tuesday's auction, reflecting an easing of pressure on the country's debt in the secondary market.

The Economy Ministry's debt-management agency had been looking to sell up to 4.5 billion euros in three- and six-month bills.

The marginal rate on the six-month issue dropped to 2.530 percent from 5.203 percent at the previous tender held on December 1. For the three-month issue the cut-off rate eased to 1.880 percent from 5.203 percent.

The Treasury sold 3.718 billion euros in three-month paper and 1.922 billion in six-month bills. Demand for the two issues totaled 18.433 billion euros, far outstripping the amount sold.

Spain's risk premium eased further after the auction. The spread between the yield on the benchmark 10-year government bond and the German equivalent narrowed 17 basis points to close at 311 basis points.

Incoming Prime Minister Mariano Rajoy has made cutting the country's public deficit the top priority of his government.

"Spain is a more convincing story to investors right now," Bloomberg quoted Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, as saying. "Mr Rajoy's government has a window of opportunity to shore up confidence in Spain's debt market."